A new data reporting mandate that the US Department of Treasury’s Federal Insurance Office (FIO) is considering imposing on certain property/casualty insurers raises a variety of concerns for both insurers and their policyholders.
In response to a request for feedback On the proposed data call, Triple-I told FIO that the requested data would be duplicated, could lead to misleading conclusions and, by increasing operating costs for insurers, would ultimately lead to higher premium rates for policyholders. .
“Complying with this new mandate would require insurers to remove existing staff from work they are already doing or hire staff to do the new work, increasing their operating costs,” Triple-I wrote. “As the FIO is well aware, state-by-state regulation prevents insurers from ‘shifting’ their cash flows in response to changes in the way that more lightly regulated industries can. Higher costs inevitably drive increases in policyholder premium rates.”
from President Biden Executive Order on Weather-Related Financial Risk, issued in May 2021, emphasized the important role insurers can play in addressing these risks. The order authorizes the FIO to “assess weather-related issues or gaps in the supervision and regulation of insurers” and to assess “the potential for significant disruptions in private insurance coverage in regions of the country particularly vulnerable to the impacts of change climate”.
Triple-I argues that these objectives can be met using the information that insurers are already required to report, as well as other publicly available data. He also suggests that “assessing the potential” of outages might not be as productive an endeavor as working to prevent such outages by collaborating with the insurance industry to reduce their likelihood.
“There is no shortage of information to help FIO and policymakers address the conditions that contribute to climate risk and drive the behavioral changes needed in the short, medium and long term,” Triple-I wrote, reminding FIO that the Cat modeling companies prepare their industry exposure databases from public sources, not insurer data calls. Likewise, there is abundant public information on the needs of vulnerable populations and the risks to which they are subject. “What is needed is to build on existing efforts and take advantage of the voluminous data and analysis that already exists to identify problem areas that are well understood.”
Insurance availability and affordability are inextricably linked to damage and loss reduction. The best way to keep insurance available and affordable is to reduce the amounts insurers have to pay on claims.
“Less damage leads to reduced claims, which helps preserve policyholder surplus and allows insurers to limit premium rate increases over time,” Triple-I wrote.
The importance of collaboration with industry was a main theme of the Response from the National Association of Insurance Commissioners (NAIC) to FIO’s request for comments.
“While we recognize the Treasury’s desire to better understand the impact of weather risk and weather-related exposures on the availability and affordability of the homeowners insurance market,” the NAIC wrote, “we are disappointed and concerned that the Treasury decided not to involve insurance regulators. in a credible exercise to identify data elements collected by industry or the regulatory community.”
NAIC contrasted Treasury’s approach to previous data collection efforts, such as after Superstorm Sandy, when Treasury initially asked states for a far-reaching data set, but ultimately agreed to a more focused call. In the current case, the NAIC wrote: “The unilateral process that Treasury has employed thus far is a missed opportunity to work collaboratively with regulators on an issue that we have both identified as a priority.”
Insurers are responsibly promoting a more sustainable and resilient environment and economy. The most pressing need now is to help communities adapt and ensure they are adequately insured against events that cannot be prevented. The NAIC, as well as residual market managers in Florida, Louisiana, and California, states where climate risk impacts are already manifesting, can provide relevant data and information and help FIO translate it into actionable policy proposals.
Triple-I agrees with the NAIC that the FIO should use publicly available data and work with state insurance regulators, who fully understand the risks, market and operating dynamics, and policy frameworks. Such an approach would save unnecessary work for the FIO and insurers and unnecessary confusion for the public.
