“Environmental, Social, and Governance,” often referred to as “ESG,” are core themes currently circulating throughout the insurance industry – and they are likely to remain an important focus of the insurance industry for many years to come. One recent ESG development is the NAIC’s adoption of enhanced climate survey disclosure requirements. Specifically, on March 21, 2022, the NAIC’s Climate and Resiliency (EX) Task Force adopted additional annual disclosure requirements concerning an insurer’s financial exposure to environmental risks. Any insurer with a national written premium amount of at least $100 million, licensed to write in any of the participating states, must complete and submit an annual environmental survey. As of 2021, the participating states are California, Connecticut, Delaware, Maine, Maryland, Massachusetts, Minnesota, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington.
What You Need to Know:
- Insurers must assess their climate-related risks and opportunities within the context of their businesses, operations, and physical locations in order to determine potential financial implications.
- The information submitted by insurers will be public (insurers should not submit any information that they intend to remain confidential).
The revised survey is intended to address the Financial Stability Oversight Council’s recent recommendation to “consider enhancing public reporting requirements for climate-related risks” in a way that would build on the core elements of recommended climate-related financial disclosures. These core elements are governance, strategy, risk management and metrics and targets.
Below are some key takeaways for insurers impacted by the recent enhancements.
- The threshold limitations of $100 million in written premium and the list of participating states have not changed.
- The information submitted by the insurer will be public. An insurer should not submit any information that it intends to remain confidential.
- State regulators are encouraged to be flexible with insurers during the transition to the enhanced survey requirements as insurers move to a new reporting framework.
- Insurers are only required to disclose information material to an assessment of financial soundness. Insurers will need to justify their assessment of materiality.
- An insurer must assess its climate-related risks and opportunities within the context of its businesses, operations, and physical locations in order to determine potential financial implications. An insurer should consider “current and anticipated policy constraints and incentives in relevant jurisdictions, technology changes and availability, and market changes; and whether an organization’s physical locations or suppliers are particularly vulnerable to physical impacts from climate change” in its assessment.
This year will be considered a transition year for implementation of the new disclosure requirements in the survey. Specifically, if an insurer has already completed its 2022 survey for this reporting year, it can submit the completed survey as is; however, if an insurer has not yet completed the survey for this year, such insurer should make its best efforts to complete the new, enhanced survey. Additionally, for 2022, the NAIC recommends an extension of the submission deadline for the new disclosures from August 31st to November 30th. Beginning in 2023, insurers are expected to full comply with the new, enhanced disclosure requirements.