Insurers Must Disclose Climate-Change Exposure

By JEFFREY BALL
Insurance companies must start disclosing how climate change is likely to affect their businesses, state insurance regulators decided Tuesday.
The National Association of Insurance Commissioners voted to require insurers to submit annual "climate-risk" reports, an unusually aggressive stance on the environmental issue from industry regulators.
The officials acted after concluding that climate change threatens insurers in two ways. It increases the risk of extreme weather events such as floods and wildfires, which would boost claims. And it is prompting governments to cap industrial carbon emissions that contribute to global warming -- a move threatens the profits of companies such as coal-fired utilities in which insurers commonly invest.
Climate change "will have a huge impact on the insurance industry," particularly on property and casualty insurers, said Joel Ario, Pennsylvania's insurance commissioner and the head of the association's global-warming task force.
Insurance commissioners also foresee climate change offering savvy insurers new ways to make money. One example: auto insurance with premiums based on the number of miles a person drives. Such policies would prod consumers to drive less, curbing their vehicles' carbon emissions.
The commissioners' decision shows how the politics of climate change are shifting. In the past, a handful of insurers have expressed concern that the phenomenon threatens their portfolios. Most of those companies have been based in Europe, which already has imposed carbon-emission limits. But momentum is moving in the U.S. toward some sort of emission constraint, as the Obama administration and Democratic lawmakers have said they intend to impose such a cap.
The insurance commissioners' decision came only after delicate negotiations over how tough to make the environmental requirements. Environmental activists wanted insurers to have to disclose specific information about how their businesses might be threatened by climate change, said Andrew Logan, director of the insurance program at Ceres, a Boston-based environmental group involved in the talks. The activists believe such disclosures will help them press their case in Washington for a tough federal cap on carbon emissions.
Many insurers resisted. In the end, the regulators stipulated that insurers need not provide information that is "quantitative," that is "forward-looking," or that insurers "in good faith believe is commercially sensitive or proprietary."
What information insurers choose to disclose will become public next year. Insurance companies with annual premiums totaling more than $500 million must submit their first annual climate-risk disclosure reports by May 1, 2010.
Some carriers aren't happy with the regulators' decision. David Kodama, director of policy analysis for the Property Casualty Insurers Association of America, which represents more than 1,000 insurance companies, said his group is concerned that insurers that provide climate-risk information could face lawsuits alleging that their information isn't detailed enough.
Write to Jeffrey Ball at jeffrey.ball@wsj.com