Industry Issues | ERM & Emerging Risks

California Climate Change Report Includes Research on Climate Impacts and How to Respond

Climate Change - Research & Public Policy

In a CDI Press Release, California Insurance Commissioner Dave Jones announced the publication of California's Fourth Climate Change Assessment. The CDI, in conjunction with an interagency Task Force, led the Assessment to raise the state's and public's understanding of the impacts of climate change in California and actions to help the state prepare for those impacts. (Key Findings Overview)

According to Commissioner Jones, climate experts have found that climate change is contributing to catastrophic weather-related events, including the increase in frequency, severity and unpredictability of wildfires. By 2100, if greenhouse gas emissions continue to rise, the Fourth Assessment found that the frequency of extreme wildfires burning over approximately 25,000 acres would increase by nearly 50 percent, and that average area burned statewide would increase by 77 percent by the end of the century. In the areas that have the highest fire risk, wildfire insurance is estimated to see costs rise by 18 percent by 2055 and property insured would decrease. 

The Fourth Assessment addresses critical information gaps that decision-makers at the state, regional, and local levels need addressed in order to protect California's people, infrastructure, natural systems, working lands, and waters. According to the report, the science is highly certain that California (and the world) will continue to warm and experience greater impacts from climate change in the future. While most of these trends have been generally understood and expected since before California's First Climate Change Assessment in 2006, the Fourth Assessment provides new quantitative tools to understand and address these impacts.

 
OTHER RELATED NEWS

The NAIC Climate Change Working Group met during the recent NAIC summer national meeting in Boston. The working group heard presentations on voluntary reporting of climate risk and a recent IAIS climate change paper.  The paper emphasized the importance of insurer recognition of the physical risks arising from increased damage and losses from physical phenomena associated with climate trends such as rising sea levels and events such as natural disasters. The paper also outlined transition risks arising from disruptions and shifts associated with the transition to a low-carbon economy, which may affect the value of assets or the costs of doing business for firms. Risk management of climate-related risks and opportunities is increasingly on the radar of international financial regulators, and European insurers and reinsurers are viewed as leading the way on climate risk disclosure and mitigation.

Commissioner Doak (OK) requested that letters opposing California's Climate Risk Carbon Initiative actions be added to the agenda.  12 state attorneys general and Kentucky Gov. Matt Bevin called the initiative "misguided as a matter of policy, questionable as a matter of law and inconsistent with the principle of comity among the United States" in a letter sent to Commissioner Jones in June 2017.

PCI was permitted two minutes to provide comments in which we emphasized that the industry is being responsive and that politicizing investment regulation is not productive and indeed could be destructive of the entire sector. PCI also asked that industry comments to the IAIS paper be included in the minutes, which the chairman agreed to.    

EIOPA joins the Sustainable Insurance Forum

The European Insurance and Occupational Pensions Authority (EIOPA) became a member of the Sustainable Insurance Forum (SIF), a network of insurance supervisors and regulators from around the world working together on sustainability challenges facing the insurance sector.

The SIF, together with the International Association of Insurance Supervisors (IAIS), called on the insurance sector to enhance awareness and intensify climate risk scrutiny in the aforementioned issues paper on climate change risks. EIOPA will consider transition and physical risk alike and provide input from a European perspective on taxonomy, fiduciary duty, governance, Own Risk and Solvency Assessment as well as disclosure in EIOPA's Sustainable Action Plan planned to be released in autumn this year.

Group of environmental groups call on the insurance industry to divest in coal and tar sands

In July, the San Francisco Board of Supervisors voted unanimously in favor of a resolution to urge the city to screen insurers for their investments in coal and tar sands. The resolution, titled "Urging Divestment by Insurance Companies From Coal and Tar Sands Industries," was introduced by Supervisor Aaron Peskin. The resolution comes as the city prepares to host climate leaders from around the world at the Global Climate Action Summit in September.

In New York, a proposed Climate and Community Protection Act would commit the city to being powered by 100 percent renewable energy by 2050. The act, which has passed through state Assembly, would also mandate that at least 40 percent of state energy funds are invested into vulnerable communities, as well as creating labor protections for workers in the renewable energy industry.

The Sunrise Project, a supporter of the insurer screening resolution, plans to take similar proposals to other city councils around the nation. 

Further, the Sunrise Project has issued letters directly to numerous U.S. property and casualty insurers seeking their immediate action on the matter (attachment). The letter calls for the following measures to be taken:

  1.  Immediately start divesting from coal companies and companies developing projects to extract and transport tar sands. Divestment should include your company's own assets and assets managed for third parties.
  2. Immediately cease insuring coal and tar sands projects and companies (unless they are engaged in a rapid transition process from coal and tar sands to clean energy that would normally take no longer than two years). Extreme fossil fuel projects which insurers should stay away from include, among others, the Trans Mountain, Keystone XL and Enbridge Line 3 tar sands pipelines. Workers' compensation policies, which directly benefit workers in the fossil fuel industry, should be exempt from this policy.
  3. Quantify the carbon footprint of your investments and insurance activities and reduce the overall footprint of your company's activities in line with a science-based path which limits average temperature increases to 1 .5 degrees Celsius.
  4. As you divest from and stop underwriting coal and other fossil fuel projects, at a corresponding pace scale up investments in clean energy companies and insurance coverage for clean energy projects that follow international human rights, indigenous rights, social and environmental standards.