Casten, Waters, Whitehouse Call on State Insurance Commissioners to Share Updates on Efforts to Address Urgent Climate-Related Insurance Risks
Washington, D.C. — Today, Congressman Sean Casten (D-IL), Congresswoman Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, and Senator Sheldon Whitehouse (D-RI), Chairman of the Senate Committee on the Budget, sent a letter to Andrew Mais, President of the National Association of Insurance Commissioners (NAIC). In the letter, the lawmakers urge NAIC to provide an update on the implementation of the critical recommendations made last year by the Treasury Department’s Federal Insurance Office that would properly integrate climate-related financial risks within the insurance industry.
This letter comes in response to the growing effects of climate change, which continue to exacerbate the insurance crisis faced by millions of homeowners across the country, resulting in a coverage crisis that has severely limited insurance availability and affordability for millions of people nationwide. Additionally, as the lawmakers highlight in the letter, the insurance crisis is also posing damage to the broader economy by contributing to continued inflationary pressures while simultaneously compounding our nation’s worsening affordable housing crisis.
“Last June, in response to Executive Order 14030, the Treasury Department’s Federal Insurance Office (FIO) released a report identifying climate-related gaps in state supervision and regulation of insurers. The FIO made 20 recommendations on how state regulators and the National Association of Insurance Commissioners (NAIC) can fill these gaps. Given NAIC’s role as an organization governed by insurance commissioners and one that develops model legislation, regulations, and best practices for states to consider adopting, we write to inquire about the status of the NAIC’s adoption of the 18 relevant recommendations made by the FIO around integrating climate-related financial risks into U.S. insurance supervision and regulation,” wrote the lawmakers. “The FSOC’s 2023 annual report warned that ‘the increasing frequency and severity of extreme weather can affect the solvency of insurers and the cost and availability of coverage for homeowners and businesses.’ This, in turn, ‘could affect mortgage markets and house prices and could potentially generate larger economic spillover effects.’”
The lawmakers concluded by requesting that the NAIC provide a detailed update by August 26, 2024, on its progress in implementing the FIO’s recommendations and any additional steps the organization is undertaking to strengthen insurance supervision and regulation in response to climate-related financial risks.
This letter also builds on the effort led by Committee Democrats to address the growing insurance crisis. Last month, during a House Financial Services Committee hearing, Congressman Casten raised concern that insurance companies lost money on homeowners coverage in 18 states in 2023, including in Illinois. This could affect real estate values where Americans have more than one-third of their wealth invested in their homes. He also questioned Treasury Secretary Janet Yellen on current data gaps in the NAIC’s joint data call with the FIO to assess the effects of climate-related risks on the insurance industry due to the lack of participation from some of the most vulnerable states to climate disasters. You can watch his questioning here.
See the letter here and below.
Dear Commissioner Mais:
Last June, in response to Executive Order 14030, the Treasury Department’s Federal Insurance Office (FIO) released a report identifying climate-related gaps in state supervision and regulation of insurers. The FIO made 20 recommendations for how state regulators and the National Association of Insurance Commissioners (NAIC) can fill these gaps. Given the NAIC’s role as an organization governed by insurance commissioners and one that develops model legislation, regulations, and best practices for states to consider adopting, we write to inquire about the status of the NAIC’s adoption of the 18 relevant recommendations made by the FIO around integrating climate-related financial risks into U.S. insurance supervision and regulation (further outlined below).
The Financial Stability Oversight Council (FSOC) asserted in 2021 that “climate change is an emerging threat to the financial stability of the United States.” Since then, Treasury Secretary Janet Yellen, Chair of the FSOC, has flagged concerning trends in the insurance markets. The New York Times reported that climate disasters are causing insurance markets to become stressed not just in coastal states, but in many Midwestern states with growing damages from hail storms and other climate impacts. In fact, in response to rising insured losses due to climate change, large home insurers are requesting significant rate increases from state insurance commissioners across the country, increasing policy exclusions, avoiding renewals in unprofitable markets, and implementing higher deductibles in areas with substantial exposure to climate events. Meanwhile, as private insurers increasingly exit certain markets, state-based “insurers of last resort” have expanded, including in states like California, Louisiana, and Florida. The FSOC’s 2023 annual report warned that “the increasing frequency and severity of extreme weather can affect the solvency of insurers and the cost and availability of coverage for homeowners and businesses.” This, in turn, “could affect mortgage markets and house prices and could potentially generate larger economic spillover effects.” The spillover from property insurance to both the mortgage and real estate markets has been identified as a significant risk by Freddie Mac.
Indeed, we are already seeing the implications of the insurance crisis spilling over into various segments of the economy. Earlier this year, Federal Reserve Chair Jerome Powell shared with Congress that rising insurance costs were producing continued inflationary pressures. The President of Aon recently testified that “[j]ust as the U.S. economy was overexposed to mortgage risk in 2008, the economy today is overexposed to climate risk.” In fact, Harvard Business School professor, Ishita Sen, recently argued that risk-based capital requirements need to be adjusted to incorporate climate risk. Professor Sen’s research affirms a vital recommendation from the FIO that falls squarely within the jurisdiction of the NAIC’s capital adequacy task force. The insurance crisis is also compounding our nation’s worsening housing crisis. For example, a coalition of 24 private, for-profit and non-profit housing developers wrote to Congress and President Biden to express their concern that insurance market volatility is threatening the availability and affordability of housing markets nationally. In fact, some nonprofit affordable housing developers have experienced 300-450% insurance cost increases that have completely halted development projects.
Given these factors and the NAIC’s standard-setting role in insurance, we ask that you please share, by no later than August 26, 2024, what the NAIC has done, or what it plans to do, to implement the FIO’s recommendations, or to otherwise strengthen insurance supervision and regulation to better address climate- related financial risks. We have appended FIO’s 18 recommendations for your reference.
We thank you for your attention to this urgent matter. The FIO’s recommendations represent a helpful roadmap, and we look forward to learning about the NAIC’s efforts in leading State regulators toward the strongest possible standards for integrating climate risk into insurance regulation.
Sincerely,
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