NAMIC Takes Issue with NAIC White Paper on Global Warming and Insurance |
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Written by U.S. Insurance News
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Tuesday, 22 January 2008 |
Global warming is already a controversial topic.
Now, count the insurance industry among those groups that don't agree on how to react to this controversy.
The National Association of Mutual Insurance Companies (NAMIC) has expressed concerns about a draft white paper that examines the effect of climate change on insurance. In its comments to the National Association of Insurance Commissioners (NAIC), NAMIC took issue with the document's recommendation that insurance commissioners take steps to lessen the impact global warming will have on insurance.
"For the most part, we believe the white paper's discussion of natural disaster-related issues such as building codes, land-use planning, and flood insurance reform is thoughtful and constructive," wrote Robert Detlefsen, NAMIC's vice president for public policy. "However, the white paper is far more than a discussion of disaster mitigation."
NAMIC is especially concerned by the paper's insinuation that global warming will increase the frequency and severity of all types of natural disasters and that, as a result, regulators should respond by requiring insurers to engage in a formal process of climate risk disclosure.
Detlefsen argues that using disclosure requirements to pressure insurance companies into adopting one particular agenda for combating global warming is a "flawed approach" to meeting the challenges proposed by large-scale catastrophe risk.
"Instead, the white paper should examine the role that regulation often plays in distorting insurance markets and thereby increasing the risk of property loss and human suffering in disaster-prone regions," he wrote.
The white paper urges the NAIC to "consider creating under the Financial Condition (E) Committee a working group to develop interrogatories and other tools to evaluate" risks allegedly related to climate change.
But Detlefsen points out: "It is difficult to imagine how forcing insurers to respond to such questions would reduce the regulatory burden they face."
NAMIC's primary objection to the proposed interrogatories is that their ultimate purpose would be to change behavior. Detlefsen believes these are designed to "'cajole or require insurers to take climate change risks seriously,' which they can only demonstrate by altering their business practices to conform to the policy agenda embedded in the questions."
Detlefsen suggests that a more effective approach is to examine insurance regulation in catastrophe-prone regions by analyzing particular rules and regulatory practices. This will "determine whether they are facilitating or hindering the ability of private insurance markets to play a constructive role in mitigating the effects of large-scale natural disasters," he wrote.
In addition, NAMIC believes that it is up to the government, not insurance regulators, to develop policies and programs that reduce greenhouse gas emissions and promote the development of alternative energy sources.
But that doesn't mean the insurance industry should do nothing. Detlefsen believes that insurance regulators can do quite a bit to improve the ability of insurers and insurance markets to "ameliorate the social and economic effects of large-scale catastrophes."
"To that end, the Climate Change and Global Warming Task Force could perform a valuable public service by reorienting the focus of its white paper to identify specific insurance regulatory reforms that will create economic incentives for individuals and businesses to avoid, prevent, and mitigate catastrophe risk in hazard-prone areas," he wrote.
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