While the insurance industry has yet to publicly and explicitly acknowledge global warming and the importance of protecting the environment, actions taking place within the industry—which are related to industries and governments—are indicative that a shift is occurring to make the world greener.
Parametric insurance policies
A project-specific example of this is the recent launch of the first parametric coral reef insurance policy in the U.S.—orchestrated by the Nature Conservancy and WTW, a British-American multinational insurance services company—which is “designed to provide funding for rapid coral reef repair and restoration across Hawaii in the immediate aftermath of damaging storms.”[1]
The goal of this new insurance tool is to repair ecosystems essential to the health of the ocean and land.[2] This helps the Nature Conservancy’s goal of utilizing coral reefs as barriers to protect humans on land during massive storms, which protects local economies, including tourism.[3]
Those in the hospitality industry, governments, and other officials already have realized the role reefs play in protecting coastlines, and therefore the tourism industry.[4] Now, the insurance industry is catching on to the role coral reefs can play in reducing costs after major storms.
Climate change and net-zero goals
Insurance carriers—both domestically and internationally—have been hard at work developing insurance products aimed to solve problems associated with climate change and net-zero goals, such as:
- Creating long-term coverage for solar panels;
- developing products and services to businesses in aid of transitioning to a low-carbon economy;
- developing new ocean carbon-sink index insurance policies for coastal municipalities to aid post-disaster relief efforts;
- partnering with sustainability consultants;
- offering parametric insurance to cover specific events, including those related to climate change and disastrous storms;[5] and
- creating insurance policies related to carbon trading to protect investors in clean technology projects such as reforestation and renewable energy.[6]
Some insurers have established specific units to coordinate global warming initiatives, and reinsurers have been sponsoring research to find ways for individuals and societies to adapt to extreme weather that is becoming more prevalent.[7]
Climate-change disclosures
On a wider scale, the National Association of Insurance Commissioners released an updated climate-risk disclosure survey in April 2023, aligning mostly with the Task Force on Climate-Related Financial Disclosures framework.[8] The goal of this update is to cause a shift in climate-related disclosures by U.S. insurers, forcing them to think about climate change within their businesses and how to address it.[9]
Government response
In addition to the insurance industry taking action, governments are beginning to pay attention to the impact climate change is having on the insurance industry and implementing requirements forcing insurers to pay attention to their impact on the environment.
For example, the U.S. Senate Budget Committee has sent letters to insurance companies or owners of insurance companies inquiring about company underwriting, investments and profits from the fossil fuel industry.[10]
Essentially, U.S. lawmakers are recognizing the hypocritical behavior of a handful of insurance carriers that continue to withdraw from markets, drop policyholders, stop offering new policies, and increase premiums, but then fail to recognize that their insurance of fossil fuel projects and creation of investment portfolios heightening climate risk are part of the issues they state as reasons for these behaviors.[11] Additionally, the Treasury Department has proposed an investigation into how certain carriers’ choices to withdraw from markets most vulnerable to climate change will widen “‘systemic inequities.’”[12]
The U.S. Securities and Exchange Commission released a climate-disclosure-requirements proposal in March 2023 in response to growing investor demands to understand what companies are doing in response to the risks associated with climate change and transitioning to a law carbon economy.[13] This indicates a shift from what was once providing voluntary disclosures of climate-related risks to the imposition of mandatory requirements and heightened legal liability.[14]
At the state level
In New York state, Gov. Kathy Hochul recently signed into law two pieces of legislation. The first, S.5186-A/A.5221-A, now requires the Department of Environmental Conservation to implement new permit regulations and guidance in connection with nature-based solutions to stabilize tidal shorelines in the state and provides what solutions should be considered when promoting or implementing rules and regulations related to such.[15]
The second, A.1967/S.5400, implements a requirement that sellers now must disclose to home buyers whether a property is located in a flood risk area or if the house has flooded previously.[16] The legislation was part of a package aimed at progressing Gov. Hochul’s “commitment to climate resiliency and the safety of New Yorkers.”[17]
Vermont, another state within PIA Northeast’s footprint, recognized in 2021 the impact of climate change in the state when the Department of Financial Regulation released a report finding severe weather—particularly hailstorms, gradient wind and thunderstorms—was likely to become more prevalent and cause greater property damage and costs for both property owners and insurers.[18]
The DFR committed to mitigating the impact of climate change and outlined steps it planned to take to do so, including, but not limited to, “support[ing] the development and marketing of innovative insurance products and services that support a reduction in greenhouse gas emissions,” incentivizing energy efficient building methods and updates for new and old construction and the transition to renewable energy, as well as provide resources to Vermont consumers “on climate-related risks and insurance policy limitations (e.g., common exclusions).”[19]
Next steps?
It seems that the insurance industry finally may be making great strides to mitigate the impact that climate change is having on the industry. And, in doing so, it is creating a unique opportunity for the insurance industry to be a leader in progress in the green space.
This will not only help the environment, but it can protect insureds and carriers from spiraling costs and lack of insurance protection.
[1] Lori Chordas, Parametric Insurance Helps Restore Dwindling Coral Reefs, Best’s Review.
[2] Ibid.
[3] Ibid.
[4] Ibid.
[5] Net zero and insurance underwriting the clock is ticking.
[6] Background on: climate change and insurance issues.
[7] Ibid.
[8] ESG: a growing sense of urgency.
[9] Ibid.
[10] Brianna Sacks, Lawmakers launch probe of insurance firms’ funding of fossil fuel industry, The Washington Post, June 9, 2023.
[11] Ibid.
[12] Ibid.
[13] ESG: a growing sense of urgency.
[14] Ibid.
[15] Governor Hochul Signs Legislation to Protect New Yorkers From Increasingly Frequent and Extreme Flooding, New York State, Sept. 22, 2023.
[16] Ibid.
[17] Ibid.
[18] DFR Releases Report Examining the Impacts of Climate Change on Vermont’s Insurance Industry.
[19] Ibid.
Danielle Caswell, Esq.
Danielle Caswell joined PIA Northeast as associate counsel in the Government & Industry Affairs Department in 2023. She earned her bachelor’s degree from New York University and her law degree from Brooklyn Law School with a particular focus on intellectual property, information, and media law. Prior to joining PIA, Danielle was an associate at a law firm in New York City where she focused primarily on intellectual property and entertainment-related transactional and litigation matters.
