U.S. Treasury requests info on insurance and climate-related risks

The Federal Insurance Office wants public input on how to monitor and assess the insurance industry's financial risks tied to climate change.

The Federal Insurance Office (FIO) of the U.S. Department of the Treasury (Treasury) is asking for public comment on FIO’s future work relating to the insurance sector and climate-related financial risks. (Photo: Diego M. Radzinschi/ALM)

On August 31, the Federal Insurance Officer (FIO) — an arm of the U.S. Treasury Department — published a request for information to understand how well U.S. insurers are prepared to handle the effects of climate change, with comments due Nov. 15.

The FIO says one concern is how climate-related risk might affect insurers’ investment portfolios, including the benefits, underwriting and product availability issues related to property and casualty insurance lines.

The Financial Stability Board’s report

In 2020, a group for the wealthiest countries’ financial services regulators, the Financial Stability Board, suggested that climate-related risks include the possibility that extreme weather events could hurt insurers by eroding the value of financial assets, as well as by increasing claim costs.

The Financial Stability Board’s report indicates that an assessment of climate-related financial risk “should include how the life and property & casualty (P&C) insurers’ business models (including their underwriting activities, market activities, and investment activities) are affected by each category of risk,” according to the FIO.

In May, the Biden administration issued an executive order that told the FIO to look at the effects of climate change on insurers.

In the new request for information, the FIO says that one obstacle to conducting climate risk reviews is a lack of relevant, detailed data.

The FIO’s questions

The FIO put 19 numbered queries in the request for information. Many of those queries include two or more questions.

Some of the questions could apply to commenters with an interest in life insurance or annuities as easily as commenters interested in P&C lines.

The first question, for example, is, “Please provide your views on how FIO should assess and implement the action items set forth for FIO in the Executive Order on Climate-Related Financial Risk.”

Many of the other questions appear to be written with windstorm and fire insurance properties in mind.

The only queries that refer directly to insurers’ investments are the 17th and the 18th questions.

“How should [the] FIO assess the efforts of insurers, through their underwriting activities, investment holdings, and business operations to meet the United States’ climate goals, including reaching net-zero emissions by 2050?” the FIO asks in the 17th query.

In the 18th query, the FIO asks commenters whether state efforts to “promote sustainable investment and underwriting activities” at insurers could help reduce the use of carbon-based fuels.

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