At the NAIC March 2009 meeting, the commissioners voted to require large insurers and reinsurers to complete an ``Insurer Climate Risk Disclosure Survey`` through which they disclose the strategies they are using to address climate change related risks. The survey is designed to inform each insurer`s domestic state regulator of the financial risks insurers foresee from climate change and what steps they are taking to address those risks. It consists of an eight-part questionnaire that is difficult to complete.
NAIC developed the survey in response to a 2007 decision to ascertain how prepared the insurance industry was for the challenges of climate change. The survey requires insurers and reinsurers, beginning May 1, 2010, to disclose:
- What risks climate change poses to the insurer;
- How the insurer accounts for climate change risks in its risk and investment management strategies and other business decisions, including whether it engages in computerized climate modeling;
- What steps the insurer has taken to encourage its policyholders to mitigate climate change; and
- What steps the insurer has taken to ``engage key constituencies`` on the topic of climate change.
Pennsylvania Insurance Commissioner Joel Ario, who chairs the NAIC Climate Change and Global Warming Task Force, told reporters ``Climate change will have huge impacts on the insurance industry and we need better information on how insurers are responding to the challenge.`` In testimony to Congress on March 12, 2009, Wisconsin Commissioner Sean Dilwig noted that ``the Insurer Climate Change Disclosure Survey is the first of its kind`` designed ``to gain insight into the impact of climate change`` on the insurance industry. He believes the questionnaire ``represents a good first approach [to] begin to understand how climate change is affecting the risks that are underwritten every day.`` However, he also said the questionnaire is only a ``starting point and the Task Force recognizes that as the science behind climate modeling evolves, so must the approach of regulators.``
Commissioner Dilweg also testified that United States insurers lag behind other industries in climate change related SEC disclosures. Statistically, only 15 percent of U.S. insurers surveyed discussed climate change in 10K filings, compared to 100 percent of electric utilities and 78 percent of oil companies. Likewise, only 30 percent of U.S. insurers voluntarily responded to the Carbon Disclosure Project`s questionnaire as compared to 70 percent of insurers in Europe and 62 percent in the rest of the world. As a consequence of these statistics, Commissioner Dilwig concluded that it is ``challenging`` for regulators to determine whether the U.S. insurance industry is prepared for the risks posed by climate change.
Responding to this survey creates important new responsibilities, risks and opportunities. Gardere is ready to help insurers identify, evaluate and prepare for those risks and opportunities — not only risks associated with their own operations, but also risks associated with potential claims made by or against their policyholders. Legal counsel will be important in several areas, including:
- Lobbying state legislatures on matters related to enactment of the NAIC Model.
- Representing client interests before state insurance departments as they implement and interpret any new law related to the NAIC Model Law.
- Assistance in formulating disclosure language — language that meets NAIC`s requirements without revealing proprietary Information.
- Ensuring disclosure language is consistent with other disclosures made in other forums or regulatory environments, and does not increase litigation exposure as a consequence of inaccuracy, inconsistency and unsubstantiated hyping.
- Determining what steps, if any, are within an insurer`s power to help policyholders mitigate climate risks.
- Focusing on business opportunities presented by climate change risks through active creation, marketing and implementing new products.
- Preparing clients` policyholders for ``cap and trade`` risks and opportunities.