Insurance Commissioners, Fireman’s Fund Execs Address Climate Change

By | June 2, 2008

Representatives from the nation’s insurance regulator community adopted a climate change white paper at the National Association of Insurance Commissioners Summer Meeting in San Francisco on Monday, June 2, 2008. The paper is geared to be a guideline for regulators and the industry to act on climate change issues. Meanwhile, at NAIC’s Climate Change and Global Task Force meeting held Saturday, May 31, Fireman’s Fund Insurance Co. executives Donald Soss, Stephen Bushnell and Scott Steinmetz testified, explaining their company’s green insurance products for commercial businesses and homeowners.

Prior to the task force meeting, the Property Casualty Insurers Association of America expressed concerns over the climate change white paper. PCI Vice President of Commercial Lines Rey Becker said earlier versions of the paper were “problematic.” Particularly troubling, he said, were 1) a recommendation for insurers to implement pay as you drive auto rates to encourage consumers to drive less, and 2) mentions of insurers’ internal risk assessment and informative practices to their employees and boards on the issue.

Another concern, Becker said,is the paper’s recommendation that state insurance regulators develop standardized climate risk disclosures that answer interrogatory questions that would eventually be published in insurers’ annual statements. In answering the questions, the NAIC would be asking insurance companies to talk about conduct. Such answers could then be used against insurers if the practices are deemed unfavorable, potentially drawing penalties or class action lawsuits, Becker explained.

The disclosure proposal and interrogatories were not the center of discussion at the May 31 and June 2 meetings, but are scheduled to be dealt with during meeting in July.

Becker noted that while stemming climate change is a worthy goal, the association wasn’t sure “social engineering” should be a focus of the NAIC, which he said is tasked with the business of regulating insurance.

Nevertheless, “The disclosure proposal is a minimum first step toward obtaining the information regulators need to determine the impact climate change will have on insurance consumers,” said Sandy Praeger, NAIC president and Kansas Insurance Commissioner.

The paper, as adopted during NAIC’s plenary session, states that, “Insurers can further encourage reduction of greenhouse gas emissions by providing incentives for consumers to drive less. An effective way to do so would be to give much greater weight to the miles that policyholders drive as a rating factor.” The paper notes that measurement can be done using a variety of ways, with Progressive using global positioning satellite devices.

“As regulators of one of the largest American industries, the insurance industry, it is essential that we assess and, to the extent possible, mitigate the impact global warming will have on insurance,” NAIC states in its white paper.

The paper examines:
-Solvency overview;
-Property/casualty insurer and regulatory challenges;
-Life insurer issues;
-Health insurer issues; and
-Government role.

“Nearly anything that is insured — property, crops and livestock, business operations or human life and health — is vulnerable to weather-related events,” Praeger said. “State insurance regulators are aggressively moving forward to influence greater industry attention and action relative to climate change-related risk.”

“Climate change is a complex issue — and this white paper merely serves as the beginning of a process, rather than the end,” she added. “The growing consensus about climate change requires responsible business decisions to address the issue.”

The task force is accepting comments on the white paper at until June 30, 2008.

Meanwhile, Fireman’s Fund, the first property and casualty insurance firm to offer green insurance to the U.S. commercial marketplace, explained its commercial and homeowners green products at the meeting.

Green building owners receive a 5 percent discount on the policy premium — for LEED-certified buildings. Vegetated roofs, plumbing and electrical systems, commissioning and the costs for green recertification fees for previously certified buildings are all included coverages that fill the gaps in traditional insurance policies, the company indicated. The Commercial insurance division has expanded its green offerings to include historic buildings, hotels, restaurants, manufacturing facilities and commercial auto. The company’s Specialty insurance division also offers green coverage for commercial buildings that are under construction. This summer, a similar program will be launched for homeowners.

Fireman’s Fund told regulators that interest in its green products is nationwide, not just in the west. Company executives also said that their data indicates that green insurance pays off, as green buildings present fewer risks, as their inhabitants are healthier and safer.

Regulators noted that they perceive Fireman’s Fund’s programs as an example for other insurers.

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