Industry Issues | ERM & Emerging Risks

California Insurance Commissioner Appoints Deputy Commissioner of Climate and Sustainability

Climate Change - News

Ricardo Lara pledges to confront climate-fueled wildfires, fight fraud, expand health care as next Insurance Commissioner

Ricardo Lara was sworn in as California's insurance commissioner on January 7. The former state senator said he hopes to tackle wildfires and insurance scams, among other issues, and he announced the creation of a Deputy Commissioner of Climate and Sustainability to work with environmental and industry leaders on how to manage the risks of climate change. "To the insurance industry - I ask you to join me in this fight against extreme disasters linked to climate change. We need bold action to ensure our communities adapt and are resilient to this new reality," said Commissioner Lara. "There is no other industry that has the necessary expertise to ensure that California is prepared to mitigate and reduce risk to our communities and environment." 

On January 8, Michael Peterson was sworn in as Deputy Insurance Commissioner of Climate and Sustainability. Peterson served previously as a legislative consultant to then-California State Senator Lara.

California Department of Insurance report finds that insurer assets have exposure to climate-related risks 

Prior to his departure from office, outgoing California Insurance Commissioner Dave Jones released the most recent data collected on individual insurance company's oil, gas, coal and utility investments. As part of the CDI's Climate Risk Carbon Initiative, the database reveals fossil fuel investments by insurer, including thermal coal, oil and gas, and utility investments. The online database includes three years of insurer fossil fuel investments from 2015 to 2017 searchable by insurer and year, in addition to individual insurers' responses to Commissioner Jones' request that insurers divest from thermal coal because of the risk thermal coal faces of becoming a stranded asset.

According to Jones, there is a potential financial risk to the value of fossil fuel investments as governments, consumers, businesses and markets transition away from fossil fuels in order to reduce climate change. There is a risk that fossil fuel investments could become "stranded assets" on the books of investors, including insurance companies.

New Analysis of Climate Risk Exposure of Insurers' Investments Released

The CDI engaged Paris-based think tank 2° Investing Initiative to conduct a scenario analysis of the 679 insurers in the state's market with more than $100 million in annual premiums, which account for nearly $4.3 trillion in investments. The 2° scenario refers to the energy system deployment pathway and emissions trajectory consistent with at least a 50% chance of limiting the average global temperature increase to 2°C.

The analysis was designed to answer three questions:
1. What is the current exposure of the portfolio to economic activities affected by the transition to a low carbon economy? (Section 2)
2. Does the portfolio increase or decrease its alignment with a 2°C transition over the next 5 years? (Section 3)
3. What is the expected future exposure to high- and low carbon economic activities? (Section 4)

Physical climate risks have been identified by financial regulators and insurance companies as a major financial risk to portfolios and cut across a range of traditional natural disaster categories, according to the analysis, which found that 34.1% of the coal assets within the fixed income portfolios and 31.8% of the coal mining assets within the equity portfolios will be exposed to wildfire risks in 2020. Meanwhile, 16.7% of power assets within the fixed income portfolios and 13.8% of the power assets within the equity portfolios will be exposed to flood risks in 2020, according to the analysis.