A new data reporting mandate that the U.S. Treasury Department̵7;s Federal Insurance Office (FIO) is considering imposing on certain property/casualty insurers raises a variety of concerns for both insurers and their policyholders.
In response to a request for comment on the proposed data call, Triple-I told the FIO that the requested data would be duplicative, could lead to misleading conclusions and — by increasing insurers’ operating costs — would ultimately lead to higher premium rates for policyholders.
“Meeting this new mandate would require insurers to pull existing staff from the work they already do or hire staff to do the new work, increasing their operating costs,” Triple-I wrote. “As the FIO well knows, government regulation prevents insurance companies from ‘adjusting’ their cash flows in response to changes in how lightly regulated industries can. Higher costs inevitably lead to increases in policyholder premiums.”
President Biden’s executive order on climate-related financial risks, issued in May 2021, emphasized the important role insurance companies can play in managing these risks. The order authorizes the FIO “to assess climate-related issues or gaps in the oversight and regulation of insurers” and to assess “the potential for major disruptions to private insurance coverage in regions of the country that are particularly vulnerable to the effects of climate change.”
Triple-I argues that these goals can be achieved by using the information that insurers are already required to report, as well as other publicly available data. It also suggests that “assessing the potential” for disruptions may not be as productive an endeavor as working to prevent such disruptions by working with the insurance industry to reduce their likelihood.
“There is no shortage of information to help FIOs and policymakers address the conditions that contribute to climate risk and drive the behavioral changes needed in the short, medium and long term,” Triple-I wrote, reminding FIOs that disaster modeling firms are preparing its industry exposure databases from public sources, not insurer data calls. Similarly, there is abundant public information about the needs of vulnerable populations and the risks to which they are exposed. “What is needed is to build on existing efforts and draw on the extensive data and analysis that already exists to target problem areas that are well understood.”
Availability and affordability of insurance are inextricably linked to reducing damage and loss. The best way to keep insurance available and affordable is to reduce the amounts that insurance companies have to pay in claims.
“Less claims lead to reduced claims, which helps preserve policyholder surplus and allows insurers to limit premium increases over time,” Triple-I wrote.
The importance of collaboration with the industry was a major theme of the National Association of Insurance Commissioners’ (NAIC) response to the FIO’s request for comment.
“While we recognize Treasury’s desire to better understand the impact of climate risk and weather-related exposures on the availability and affordability of the homeowners insurance market,” the NAIC wrote, “we are disappointed and concerned that Treasury chose not to engage insurance regulators in a credible exercise to identify data elements collected by either industry or the regulatory community.”
The NAIC contrasted Treasury’s approach with previous data collection efforts, such as after Superstorm Sandy, when Treasury initially asked states for a broad set of data but agreed to a more focused conversation. In the current case, the NAIC wrote, “The unilateral process that Treasury has used thus far is a missed opportunity to engage with regulators on an issue that we have both identified as a priority.”
Insurance companies responsibly promote a more sustainable and resilient environment and economy. The most urgent need now is to help communities adapt and ensure they are adequately insured against events that cannot be prevented. NAIC, as well as residual market administrators in Florida, Louisiana, and California—states where the effects of climate risks are already playing out—can provide relevant data and insights and help FIOs translate them into actionable policy proposals.
Triple-I agrees with the NAIC that FIOs should use publicly available data and work with state insurance regulators, who fully understand the risks, market and operational dynamics, and policy structures. Such an approach would save FIOs and insurance companies unnecessary work and the public unnecessary confusion.