What’s the Climate Risk of Your Insurance Company?

Recently, on National Insurance Awareness Day, I reflected on the previous week, when California Insurance Commissioner Dave Jones keynoted at the Environmental Entrepreneurs (E2) lunch meeting.

California has one of the largest insurance markets in the United States, and the sixth largest insurance market in the entire world. All of this adds up to $289 billion a year in insurance premiums that companies collect and over $7.5 trillion dollars in assets that these companies hold. Commissioner Jones is the leader of a multi-state effort that administers the National Association of Insurance Commissioners (NAIC) Climate Risk Disclosure Survey, and he launched the California Department of Insurance Climate Risk Carbon Initiative requiring the reporting of fossil-fuel investments held by insurance companies.

Commissioner Jones discussed the NAIC Climate Risk Disclosure Survey with the E2 Group. This survey, consisting of questions that assess insurers’ responses to climate change, was developed in 2009 as a mandatory survey for large companies. Three years ago, insurance regulators in California and five other states — Connecticut, Minnesota, New Mexico, New York and Washington — mandated completion of the survey by insurers writing in excess of $100 million in premiums.

At HIP Investor, we help everyday people understand a holistic picture of the future risk a company faces when making investment or purchasing choices. If an insurance company is not concerned about climate change, their investment portfolios could be facing future risk by ignoring the potential for climate risk to reduce returns to pay for their claims. If firms have high fossil-fuel exposure in their investments, the bottom line of the company could suffer. HIP Ratings can be a resource for investors and insurance consumers who are making these decisions, and a tool to empower people to evaluate these important issues.

Three steps to evaluate an insurance company on its future risk

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Check the financial strength of the company. The insurance company will provide their rating by third-party experts for free, but they tend to highlight the companies and areas that have higher scores. Be aware that each ratings company has its own rating scale. An A+ from S&P or Fitch is their fifth-highest rating, but an A+ from A.M. Best is the second-highest rating, while Moody’s doesn’t have an A+ rating at all. Learn more about each ratings agency by checking out their website.

Check the answers to the NAIC Survey. Developed by Ceres, this scorecard ranks insurance companies according to:

  1. governance structures companies have instituted to address climate risk;
  2. what climate change risk-management programs the insurers have in place at their enterprises;
  3. how insurers are using catastrophe or other computer modeling tools to manage their climate risks;
  4. how insurers are engaging with stakeholders on the topic; and
  5. how companies are measuring and reducing greenhouse gas (GHG) emissions.

Ceres also scored companies on the overall quality of their responses, and highlighted interesting survey response content. For example, MetLife also has specific board committees that oversee sustainability policies and corporate climate. Since 2003, MetLife has invested approximately $2.9 billion in solar and wind farms, and other renewable energy projects (as of December 31, 2014).

You can find the scorecard here. A sample of the rating of three of the largest insurance companies is below.

Contact us for a list of the HIP Ratings of the top 15 largest insurers in the United States to find out how your insurance provider stacks up.

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