Progress still needed on US insurers’ climate risk policies, report finds

June 26, 2024|Written by

US insurers are making some progress on integrating climate risks into their strategy and management processes but there are still many gaps that need to be addressed, an analysis by campaign group Ceres has found.

While 94% of insurers are reporting on their risk management, only 29% reported their metrics and targets related to climate risk in the past year, according to the report.

“The good news is we’re not debating now whether there should be disclosures … [but] there’s a lot of work that needs to be done,” said Steve Rothstein, managing director of sustainable capital markets at Ceres.

The report, which is the second annual analysis of insurers’ climate risk strategies by Ceres, looked at survey data from 516 insurance groups, representing about 80% of the US insurance sector. It follows the four pillars of the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD). 

Only insurers with US$100mn or more in revenue premiums are required to submit their climate risk data, although some state insurance commissioners are starting to require smaller companies to also report, Rothstein told Green Central Banking.

The report found that 86% of insurers outlined their strategies and 81% detailed their governance structure. However, only 26% provided disclosures that covered all of the pillars of the TCFD framework, with 44% disclosing three of the four.

The analysis also found some improvement in some sub-areas compared to last year’s report, but overall, there was minimal improvement. There was a slight decline in two areas: describing their management’s role in addressing climate risks and describing the targets used to manage their risks and opportunities.

Ceres recommended that moving forward, insurers establish common methodologies and frameworks, as well as leverage tools to better identify, assess, and manage climate risks. In addition, insurers should measure and report their greenhouse gas emissions, while regulators should use the data in the report to analyse how insurers are addressing climate risks.

Rothstein also said regulators and consumers should read their insurer’s climate disclosure reports and ask questions. Insurers should also communicate with each other both on the underwriting and investment side. He’d also like regulators to require midsize insurers to disclose their climate risk management strategies and for all insurers to have a climate transition plan.

“There are many insurers where the climate people on their underwriting side, on the product side, may or may not be in direct connection with their investment side,” Rothstein said.

The Federal Reserve’s most recent climate scenario analysis of the six largest US banks found that there was a lack of insurance and climate risk data. Because banks require insurance coverage to get a mortgage, experts say the lack of data is concerning and could have a huge impact on vulnerable communities in the US.

“We believe that you can’t manage a problem if you first can’t measure a problem, and if a bank doesn’t know how much exposure [there is] from insurance companies or the other sectors, they’re inherently going to be a greater risk if they can’t manage them,” Rothstein said.

This page was last updated June 26, 2024

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