Insurance and Climate Change column

California Commissioner Yet to Move on Petition from Climate Activists for More Insurer Regs

By | March 28, 2019

Nobody’s saying much as California Insurance Commissioner Ricardo Lara considers how he will respond to a petition submitted by climate change activists urging him to place new regulations on insurers to disclose what projects in the fossil fuel industry they underwrite.

“Protecting Californians from the risks linked to climate change will continue to be a top priority for Commissioner Lara and the Department of Insurance,” Michael Soller, a spokesman for Lara and the California Department of Insurance, wrote in an email reply to a request for an update on Lara’s intentions. “Commissioner Lara will examine the petition and determine if new rules are needed.”

He gave no timeline of when or if Lara would act on the petition, which was delivered to his office in mid-March. However, Lara has already made battling climate change one of his priorities. As he took office in January, he pledged to help residents recover from wildfires while defeating the threat of climate change. He also created a new deputy commissioner for climate and sustainability role on his team.

Lara and a state legislator were behind the proposal of the California Disaster Insurance bill, or Senate Bill 290, which they said would enable the state to consider buying insurance in the private market to cover rapidly increasing costs of fighting wildfires due to climate change.

Finding insurers to air their feelings about the petition has been difficult, and the group that serves as the biggest voice of the industry is now steering clear of the topic.

“We will not have a comment,” Nicole Mahrt Ganley, senior director of public affairs for the Western region of the American Property Casualty Insurance Association, wrote in an email reply to a request for comment.

The group has commented on the topic in the past, often making the point that the insurance industry is already highly regulated in terms of its actions and its investments.

The Property Casualty Insurers Association of America, prior to a name change and a merger, commented when the same climate activists who circulated this petition protested outside the National Association of Insurance Commissioners meeting in San Francisco in November 2018 to call out the industry for its investments in fossil fuel assets and its coverage of companies and projects that produce carbon.

David Kodama, assistant vice president of policy and research analysis for PCI, at the time noted that insurers already have strong oversight of their investments.

“Insurer investments are highly regulated and monitored by state insurance regulators and rating agencies,” Kodama said. “Additionally, insurers are actively engaged, implementing effective catastrophe risk management strategies and mitigation efforts that help policyholders and communities in every region prepare and prevent damage from extreme weather.”

California has already moved to get insurers to disclose their investments in fossil fuels.

Former Insurance Commissioner Dave Jones in 2016 called on insurance companies to voluntarily divest from thermal coal investments and required insurers with more than $100 million in annual premium to disclose publicly their investments in fossil fuels.

Jones also established the Climate Risk Carbon Initiative, which includes information on the amount of oil, gas, coal and utilities investments held by insurance companies, and whether the insurers have divested from thermal coal, the amount of thermal coal divested and any future commitments to divest.

The petition calls for even more requirements on the disclosure of insurer fossil fuel investments.

Bill Gates

Bill Gates is done with cow farts.

Gates in his popular blog this week addressed the delicate issue and his obsessive rumination over bovine flatulence, believed to be among the causes of climate change.

“De-carbonizing the way we generate electricity would be a huge step, but it won’t be enough if we don’t reach zero net emissions from every sector of the economy within 50 years (and make a serious dent in the next ten),” Gates writes. “That includes the agriculture, forestry, and land use sector, which is responsible for 24 percent of all greenhouse gas emissions—just one percentage point less than electricity.”

Gates sourced his data from the 2014 Intergovernmental Panel on Climate Change report.

He’s admitted writing about the gas produced by cows a lot lately, but while cattle are an example of emissions, they’re “not the only major contributor to agriculture, forestry, and land use’s slice of the emissions pie,” he writes.

Gates notes that carbon dioxide locked in soil is distributed into the air by agricultural activity.

“That’s one reason why deforestation alone is responsible for 11 percent of all global greenhouse gas emissions,” he writes.

The microbes in soil can also create greenhouse gases when they come into contact with fertilizer, he adds.

He’s not proposing that people stop eating or that they eat less.

Gates’s blog discusses his involvement with a group called Breakthrough Energy Ventures, which is backing creative solutions, such as using genetically modified microbes to provide plants with the nitrogen they need without the excess greenhouse gases that synthetic alternatives produce, growing crops with longer and denser roots that can absorb more carbon dioxide from soil and protective skins that keep food fresh longer and reduce waste.

“I wish agricultural innovation got as much attention as the impact on climate change from electricity, because its success is just as critical to stopping climate change,” he writes. “Future changes in income and population may come close to doubling the current environmental impacts of the food system. I believe creative, scalable solutions to this challenge are out there, and now is the time to invest in their R&D.”

Coastal Risk

Extreme weather events are getting worse, and so is their impact on coastal real estate, according to a Bloomberg Businessweek report this week.

“Any property that’s close to sea level is going to have an increase in the frequency of damaging events,” Peter Thornton, a senior research scientist specializing in Earth-system modeling at Oak Ridge National Laboratory, told Bloomberg. “The same storm as 20 years ago has a more damaging impact today, just because it’s starting off at a higher baseline.”

Despite the apparent increased risk of coastal living, the cost of such housing has been stable or has continued to rise. Luxury real estate in Miami Beach was up more than 60 percent year-over-year during the fourth quarter of 2018, while last year Nantucket island saw a 161 percent increase in the total number of sales from the previous year, according to Bloomberg.

“In contrast, annual National Flood Insurance premiums were raised by an average of about 8 percent on April 1, 2018, from an annual average of $866 to $935 per policy,” the article states.

Why the dichotomy?

John Rollins, an actuary at Milliman, told Bloomberg that there are too few financial repercussions for coastal homeowners, noting that “there’s been a tremendous abundance of capital that has become available to insure property risks.”

The capital has increased competition in the industry and held premiums down, and that, in turn, has artificially suppressed the cost of coastal homeownership.

“The consumer got the benefit of the disconnect between the flood of available capital that came into the reinsurance market and the voices of scientists indicating higher client risk,” Rollins said.

At the same time, the NFIP is subsidized such that those living in low-risk flood areas are subsidizing those who live in risky areas.

But all this could change as climate-related damage incidents rise and insurance companies improve their climate models, which may make them demand higher premiums, according to Bloomberg.

But until that happens, the dream of living on the ocean outweighs everything else.

“People are approaching it like a piece of jewelry or a painting,” Vincent Petrarca, a broker who specializes in coastal real estate in New York, told Bloomberg. “You can’t really justify it in a practical way. It’s emotional.”

Carney on Climate

In case you missed it, Insurance Journal last week had as story about the plans from the Bank of England to spell out how it wants banks, insurers and investment companies to manage the financial risks from climate change.

The Reuters story quoted Bank of England Governor Mark Carney, who said that companies will be “expected to embed fully the consideration of climate risks into governance frameworks, including at board level.”

Carney has been vocal in highlighting climate change’s potential impact on the financial sector.

He said the Bank of England’s regulatory arm would recommend that banks, insurers and asset managers regularly test their strategic resilience against climate change risks, and that financial firms would be expected to name a senior official responsible for managing these environmental risks.

Carney said he believes there is a “cognitive dissonance” between insurers’ careful assessment of the risks climate change poses to the liabilities they insure and a superficial approach to the assets in which they invest.

The Bank of England said last year that Britain’s banks and insurers must come up with credible plans for protecting themselves against risks from climate change and may need to hold more capital.

At the time the Bank of England laid out how it expected banks, insurers and building societies to “identify, measure, monitor, manage and report on their exposure” to climate change risks.

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Latest Comments

  • March 29, 2019 at 5:33 pm
    Captain Planet says:
    MARCH 20, 2019 AT 12:37 PM Craig Cornell says: LIKE OR DISLIKE: 1 1 Partisan . . . Hack. Do you even realize how boring you are? How predictable and lacking in any interesting... read more
  • March 29, 2019 at 2:18 pm
    Craig Cornell says:
    More Doom and Gloom! The article you link to says insurance "could" (Settled Science?) become too expensive, based on the cost of the fires in California last year. The writer... read more
  • March 29, 2019 at 12:20 pm
    SacFlood says:
    https://www.motherjones.com/environment/2019/03/climate-change-could-make-insurance-too-expensive-for-most-people/ Climate Change Could Make Insurance Too Expensive for Most P... read more

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