On August 12, 2024, three Congressional Democrats (Casten (D-IL); Waters (D-CA); and Senator Whitehouse (D-RI)) sent a letter to the National Association of Insurance Commissioners (NAIC), inquiring as to “the status of the NAIC's adoption of the 18 relevant recommendations made by the [Federal Insurance Office] around integrating climate-related financial risks into U.S. insurance supervision and regulation.” Specifically, based upon “the NAIC's standard-setting role in insurance,” these Congressmen demanded a response by “August 26, 2024, [as to] what the NAIC has done, or what it plans to do, to implement the FIO's recommendations, or to otherwise strengthen insurance supervision and regulation to better address climate-related financial risks.” In effect, these Congressional Democrats are attempting to exert pressure on insurance regulators to integrate climate-related financial risks as part of their supervisory role.

While this topic may appear technical and relatively unimportant, it actually has immense significance for the structure of the U.S. economy. Based upon decisions by insurance regulators, certain activities may no longer deemed insurable, or insurance costs can increase dramatically, and thus economic activity may be re-directed toward areas perceived as green or more climate-friendly. To give but one example identified in the letter, certain “housing developers have experienced 300-450% insurance cost increases that have completely halted development projects.” (This is in part due to “climate disasters [that] are causing insurance markets to become stressed . . . in coastal states, [and] in Midwestern states with growing damages from hail storms and other climate impacts.”) If the insurance regulators implement steps to take full account of climate risk when exercising their supervisory function, the economic impact will be significant.

Further, this action by Congressional Democrats illustrates that the current partisan political battle over climate change has many different facets, and not just the actions that more frequently generate headlines (e.g., the SEC's mandatory climate disclosures). Sometimes regulatory provisions that are more “under the radar” may ultimately be more significant in their impact.

Last June, in response to Executive Order 14030, the Treasury Department’s Federal Insurance Office (FIO) released a report identifying climate-related gaps in state supervision and regulation of insurers. The FIO made 20 recommendations for how state regulators and the National Association of Insurance Commissioners (NAIC) can fill these gaps. Given the NAIC’s role as an organization governed by insurance commissioners and one that develops model legislation, regulations, and best practices for states to consider adopting, we write to inquire about the status of the NAIC’s adoption of the 18 relevant recommendations made by the FIO around integrating climate-related financial risks into U.S. insurance supervision and regulation (further outlined below).