On August 31, the Federal Insurance Office (FIO) of the U.S. Treasury announced that it would be seeking public input on the FIO's future work relating to the insurance sector and climate-related financial risks. This Request for Information (RFI) came in response to President Biden’s May Executive Order on Climate-Related Financial Risk, which directed federal agencies to incorporate climate change issues into their regulatory priorities.
On November 12, the IIF submitted its response to the FIO RFI. The IIF welcomed FIO’s action on climate-related financial risks, especially its statements that it will engage with the insurance sector to assess how the sector may help achieve national climate-related goals. The IIF acknowledged the ongoing efforts of FIO and several States (both individually and through the National Association of Insurance Commissioners (NAIC)) to address climate-related financial risk including through climate-related disclosures, supervisory activities, and, through encouraging insurers to take steps to foster mitigation of climate-related financial risks and facilitate adaptation to a low-carbon economy. Throughout its response, the IIF emphasized that measuring and underwriting all types of risk, including climate-related physical and transition risks, is at the core of insurers’ business models, and that members of the insurance industry have been proactive in incorporating consideration of climate-related financial risks into their enterprise risk management frameworks.
The IIF encouraged FIO to continue its engagement with both the NAIC and the U.S. insurance sector in analyzing how the sector may be impacted by, and help mitigate, climate-related risks. The response urged FIO and the U.S. Treasury’s Office of Financial Research (OFR) to collaborate with the NAIC on the study of insurance climate data and on the development of a centralized database for climate-related information on the insurance sector. FIO was encouraged to leverage the NAIC’s extensive data sets when conducting analyses of, and assessing issues or gaps in, insurance climate-related supervision and regulation and to anchor its analysis of climate-related financial risks to the industry in robust data and metrics. The IIF also urged FIO and the NAIC to pursue frameworks based on the core elements of the TCFD framework in order to promote both domestic and global alignment on disclosure standards.
The IIF welcomed the fact that FIO will consult with individual State insurance regulators and the NAIC during its assessment of supervisory practices and resources. The response advised FIO to strive for alignment in approaches to assessing and mitigating climate-related risk across state insurance regulators through the NAIC. Further, the IIF encouraged FIO and U.S. Treasury to expand its proactive engagement through international forums that are shaping global climate policy, including the G20, the SIF, the IAIS, the OECD, and the EU-U.S. Insurance Project. The IIF reasoned that active participation in these consequential international discussions would allow FIO to promote transparency in policymaking and help shape international systems and standards, ensuring that they’re consistent with domestic policy objectives. Such engagement would help ensure that any global framework that emerges properly reflects U.S. perspectives and considerations, and builds on the pillars of the existing U.S. regulatory framework. Moreover, shared standards are key to supporting market-based solutions that will properly account for the costs of climate change. Lastly, the IIF highlighted the need for FIO to contribute to global solutions, acting with deliberate speed, to address climate challenges.
The IIF welcomed the opportunity to follow up with FIO and other authorities to discuss the observations and recommendations from the ongoing work of the IIF’s Sustainable Finance Working Group as it relates to the insurance sector.