DFR releases report on impacts of climate change on insurance industry
Vermont Business Magazine Today the Department of Financial Regulation (DFR) released a report examining the ongoing impact that climate change is having on Vermonters and the insurance companies that provide them coverage. The report was completed in conjunction with, and based on original research conducted by, Northview Weather, LLC, a Vermont weather modeling and forecasting firm with expertise in extreme weather events.
The report found that climate trends are making Vermont’s climate warmer and wetter which is also leading to an increase in severe weather more likely to cause greater property damage. Specifically, hailstorms accounted for the most property damage in terms of total loss, followed by gradient wind and thunderstorms. These types of weather events tend to increase in a warmer, wetter environment.
Further, the report concluded these climate trends are expected to continue over at least the next three decades, which will lead to an increase in the frequency and intensity of severe weather. In addition to those who will be directly impacted by property damage, all Vermonters could experience an indirect impact through rising homeowner and auto insurance rates.
“Vermont currently has some of the lowest home and auto insurance rates in the country and it is in the collective interest of industry and consumers to maintain that in the future,” said Commissioner Michael Pieciak.
“Financial regulators have an important role to play in helping reduce and mitigate the impacts of climate change on Americans. The financial entities we regulate collectively hold over $220 billion in assets that could both be vulnerable to climate risks and used to encourage greener practices that will reduce risk for consumers.”
The Department has committed to taking the following actions in 2021 as initial steps to helping reduce and mitigate the impact of climate change:
- Apply to join the Sustainable Insurance Forum, an international group of insurance regulators committed to sharing information and solutions that would help reduce and mitigate the impacts related to climate change;
- Continue to advocate to the U.S. Securities & Exchange Commission in support of mandatory climate risk disclosures for publicly traded companies, which will assist traditional insurers in prudent reserve management and assist the Department in regulating captive-insurance entities;
- Annually administer the Insurer Climate Risk Disclosure Survey (developed by the National Association of Insurance Commissioners) to its domestic insurance companies to help assess the systemic risk presented by climate change;
- Develop guidance to address climate-related financial risks. In its guidance, the Department expects to encourage or require regulated insurance companies to evaluate potential climate-related financial exposure by conducting stress tests and scenario analyses, incorporate climate change into enterprise risk management processes, and assess and manage climate risk exposure in investments. In addition, the Department expects to encourage companies to assess their investments in carbon-intensive sectors and to evaluate whether such investments are consistent with their risk management goals;
- Support the development and marketing of innovative insurance products and services that support a reduction in greenhouse gas emissions;
- Encourage and promote the use of incentives for businesses, farms, and consumers to utilize energy efficient building methods in both new construction and retrofitting existing structures, install energy-efficient appliances and air-handling systems, and transition to renewable energy; and
- Provide written and electronic resources to Vermont consumers on climate-related risks and insurance policy limitations (e.g., common exclusions).
The Commissioner would welcome input from Vermonters concerning other measures the Department might consider taking in this area. The Commissioner would also like to thank Jill Rickard, DFR’s Director of Policy, and Jason Shafer and Kevin Cronin of Northeast Weather for their excellent contributions to this report.
Source: Montpelier, VT – (June 28, 2021) – Vermont Department of Financial Regulation Twitter, Facebook, website.
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