Climate Change Disclosure: Ensuring the Viability of the Insurance Industry While Protecting the Investor

This is a preview of one of the upcoming Volume 34 notes

by Kevin Weigand

With the current state of the economy and an increasing demand for greater corporate transparency and regulatory oversight, many believe that enhanced corporate disclosure requirements will be implemented in the near future, including in the area of climate change. New York has already begun to require energy companies to disclose the financial effects of climate change on their operations, and it is likely that other industries will soon be targeted as well. The insurance industry is particularly concerned about climate change disclosure requirements for numerous reasons, including concerns about sharing proprietary information, difficulties with accurately assessing climate change risk, and the potentially adverse effects associated with the availability and affordability of insurance.

This note examines current SEC disclosure requirements while exploring recently proposed regulations that would expand the scope of disclosure by requiring companies to provide information on the potential effects of climate change disclosure on their financial well-being. Opposing arguments by insurers and consumer interest groups regarding how much climate change information should be publicly available are discussed as well. This note also examines the recent developments in the insurance industry, spearheaded by the National Association of Insurance Commissioners (NAIC), to adopt non-binding guidelines for states to follow when adopting their own regulations regarding the degree of climate change information insurers should provide to the general public. This note will also analyze different means of reducing an insurer’s vulnerability to climate change through various mitigation programs and initiatives. Finally, the author provides a recommendation that allows the public to receive limited information relating to an insurer’s vulnerability to climate change while attempting to alleviate the concerns of the insurance industry.

How will climate change affect the insurance industry? What can the NAIC do to influence the debate? Ultimately, how do we calculate the risk that climate change imposes on insurers?

For more from Kevin Weigand please see his Op-Ed for Science Progress.org.