The New York State Department of Financial Services (NYDFS) has set out guidelines for insurers to incorporate better climate change practices into their risk management processes and business strategies by 2021.
In a letter, to coincide with Climate Week NYC, the DFS’s superintendent, Linda Lacewell, issued a series of guidelines which insurers should follow.
Included in this are recommendations for insurers to designate a board member or a committee of the board, as well as a senior management function, as accountable for the company’s assessment and management of the financial risks from climate change.
Insurers are also encouraged to include climate change as a foreseeable and relevant material risk in their enterprise risk management and the Own Risk and Solvency Assessment process, while addressing how it impacts factors such as investment and liquidity risk as well as operational risk, reputational and underwriting risk in their businesses.
The DFS said it will incorporate questions on insurers' approaches and activities related to climate change during its insurer examination process starting in 2021, however, there will be no penalties for companies not adhering to the recommendations for the time being. It further encouraged the industry to consider engaging with the Task Force for Climate-related Financial Disclosures (TCFD) and other initiatives when doing so.
Speaking about the challenges of tackling climate risk in the face of Federal opposition — the US is due to formally withdraw from the Paris climate accord the day after the US election on 3 November — Lacewell said: “As insurers’ underwriting and investments are exposed to global markets, even if existing federal government policy is impeding the low-carbon transition in the US, the transition is still happening globally and therefore can impact insurers’ balance sheets.”
The DFS has taken much of its inspiration for the new edicts from international regulators, including the Bank of England, which Lacewell visited last year. It said it will organise a series of information webinars to help insurers and other regulated entities follow through with the initiative.
Alongside the insurance requirements, the regulator announced it has become a supporting institution of the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Sustainable Insurance (PSI).
It also signed a memorandum of understanding with New York State Energy Research and Development Authority.
The two organisations “intend to accelerate the creation of innovative insurance and financial products to speed up the development and deployment of key low-carbon technologies by providing technical support, regulatory guidance, and facilitating market access.”
Lacewell gave the keynote address at IERM's Risk & Capital Americas 2020 event.