THE OBJECTIVE
This report evaluates and benchmarks the quality and comprehensiveness of climate risk disclosures by insurance companies in response to the National Association of Insurance Commissioners (NAIC) Climate Risk Disclosure Survey. In 2014, insurance regulators in six states—California, Connecticut, Minnesota, New Mexico, New York and Washington— required insurers writing in excess of $100 million in premiums to fill out the survey. This report analyzes responses by 148 insurance companies, collectively representing about 71 percent of the U.S. insurance market in terms of 2014 direct premiums written. A total of 375 insurance companies submitted Climate Risk Disclosure Surveys.
The aim of the analysis is to provide regulators, insurers, investors and other stakeholders with substantive information about the risks insurers face from climate change and steps insurers are taking to respond to those challenges. It effectively opens a window into the industry’s response to an issue with sweeping implications. Ceres’ report also offers recommendations for insurers and regulators to improve their management and disclosure on wide-ranging climate risks.
THE ANALYSIS
The report encompasses Property & Casualty (P&C) and Health insurers writing at least $1 billion in direct premiums annually, and Life & Annuity (L&A) insurers writing at least $750 million in direct premiums annually.
It assesses the quality of insurer responses across five core themes aligned with the NAIC’s Climate Risk Disclosure Survey questions: 1) governance structures insurers have in place to address climate risk; 2) climate risk management programs companies have instituted across their enterprises; 3) how insurers are using catastrophe or other computer modeling tools and techniques to manage their climate risks; 4) how insurers are engaging with stakeholders on the topic of climate risk; and 5) how companies are measuring and reducing greenhouse gas (GHG) emissions. Ceres also scored companies on the overall quality and comprehensiveness of their responses to the survey questions.
Ceres assigned a point value to each question and sub-question from the NAIC survey. 1 To simplify our findings, Ceres employs a four-tier system to rate disclosure quality and comprehensiveness. Using a 100-point scale, “High Quality” company disclosures earned 75 points or higher, “Medium Quality” earned between 50 to 75 points, “Low Quality” earned between 25 and 50 points, and “Minimal Quality” earned fewer than 25 points. Company specifIc ratings across all six themes can be found in Appendix A.
KEY FINDINGS
The report provides clear evidence of industry improvement on disclosure of climate risk management practices, especially among Property & Casualty and Life & Annuity insurers. Still, most of the 148 insurers evaluated continue to show an overall lack of focus in addressing climate risks and related opportunities. Twenty-two insurers (including 13 based in the U.S.), or 16 percent of the total 148 companies scored by Ceres earned a High Quality rating. That is more than double the nine companies that earned a top rating in Ceres’ 2014 report. However, 64 percent of the total insurers earned Low Quality or Minimal ratings. Additional key report findings include:
The largest insurers, i.e., those writing more than $5 billion in direct premiums had the most marked improvement, especially in terms of governance practices related to climate risk management.
Many life & annuity insurers also showed signifIcant improvement.
Health insurers showed a continued general lack of understanding about climate risks, despite growing scientifIc evidence linking climate change to increased morbidity and mortality impacts. The following table lists the 22 insurers that earned a High Quality rating. Sixteen of the companies are P&C insurers and six are L&A. The 13 U.S.-based insurers earning a High Quality rating is a marked increase from just two companies in Ceres’ 2014 report.