Takeaways:
- Large insurers would have to assess and disclose climate risks
- Proposal requires risk projections for next three decades
- Advocates want more risk mitigation efforts and disclosures
California insurance commissioner Ricardo Lara's proposed Long-Term Solvency Regulation, announced October 28, has insurers criticizing its provisions while consumer advocacy groups call for more disclosures and climate mandates.
Speaking in a hearing hosted by the Department of Insurance (CDI) on November 14, Seren Taylor, vice president of the Personal Insurance Federation of California, said the regulatory proposal lacks measurable outcomes, and is too prescriptive.
"[It] appears to require insurers to identify and plan for development of new insurance products. This provision could be interpreted to mandate product innovation rather than risk evaluation which falls outside the scope of solvency regulation," Taylor said. "Product development decisions are appropriately driven by market demand, actuarial soundness and competitive strategy, not regulatory directives."
According to Taylor, the ORSA framework for insurers' solvency, authored by the National Association of Insurance Commissioners and adopted by California in 2015, is sufficient.
Solvency projections extended to 2040 or 2050 are too speculative, according to Bruce Byrnes, chief compliance officer at Berkshire Hathaway Insurance Companies.
Furthermore, the regulation's proposed data reporting requirements duplicate what is already required and wouldn't prevent events like the 2018 liquidation of Merced Property & Casualty after losses from the Camp wildfire, according to Stacey Jackson, executive director of the Pacific Association of Domestic Insurance Companies.
On the other hand, advocates want the regulation to require more disclosures by insurers, more credit for homeowners' risk mitigation efforts and more action on climate risk.
California's regulator should not rely only on insurers' risk materiality assessments, stated Elyse Schupak, policy advocate in the climate program at Public Citizen. She also called for stricter requirements for insurers' investments, and their impact on climate change.
"The department should ensure the long term investment strategy targets created by insurers are comprehensive, trackable, and facilitate meaningful climate risk reduction," she said. CDI, she added, should be "mandating insurers set science-aligned emissions reduction targets, inclusive of the insurers underwriting investing in operations and requiring the disclosure of progress towards emissions reduction targets, consistent with meeting target setting and transition plans."
Schupak also called for public disclosure of such risk assessments and risk mitigation efforts as a model for other states.
Similarly, Steven Rothstein, chief program officer of Ceres, a sustainability advocacy non-profit, said CDI should publicly disclose the results of
Elizabeth Derbes, director of financial regulation and climate risk at Natural Resources Defense Council (NRDC), said the regulation should also extend its climate risk assessment of insurers' investments to insurers' underwriting. While Derbes agreed that risk projections through 2040 and 2050 will decline in usefulness, she added that regulation should require these projections to be updated annually.
In addition, Derbes called for insurers with premiums below $50 million to also be subject to the proposed new rules. The proposed regulation would apply to insurers above that figure.
