The NAIC will provide anonymized
climate data to the feds
The association will launder the industry data through its servers and remove the
stains of any … attributable … redlines.
By Kevin P. Hennosy
As this edition of Rough Notes goes to print, the Federal Insurance Office (FIO) of the U.S. Treasury Department will be analyzing data on insurance carriers’ exposure to climate risk. At least that is the plan, but the history of this project is a tale of starts and stops.
The project began with an Executive Order on Climate-related Financial Risk issued by President Biden on May 20, 2021. The order addressed a wide swath of financial issues, from flood insurance to pensions to federal lending programs.
The Executive Order directed the FIO “to assess climate-related issues or gaps in the supervision and regulation of insurers, including as part of the FSOC’s (Financial Stability Oversight Council) analysis of financial stability, and to further assess, in consultation with States, the potential for major disruptions of private insurance coverage in regions of the country particularly vulnerable to climate change impacts.”
The order envisioned a completed report to the president detailing a comprehensive governmental strategy to address climate-related financial risk developed by multiple departments, agencies, and offices of the executive branch within 120 days. The Executive Order granted the FIO 180 days to complete its data analysis charge.
Created as part of the Dodd-Frank Act of 2010, part of the FIO’s powers include collecting data from the insurance sector. These well-laid plans assumed that the FIO could obtain the data from insurers without extensive litigation.
Libertarian take
As early as 2011, R. J. Lehmann, co-founder of the Libertarian R Street Institute, published an issue analysis essay that noted the FIO’s potential for becoming a repository for insurance sector data to support free-market competition. The Securities and Exchange Commission and the Federal Reserve System provide such data repositories for publicly traded companies and banks, respectively.
Lehmann explained: “The brainchild of former Rep. Paul Kanjorski, D-Pa., FIO is designed to be a central repository of insurance expertise within the U.S. Treasury Department, empowered under the law to ‘receive and collect data and information on and from the insurance industry and insurers; enter into information-sharing agreements; analyze and disseminate data and information; and issue reports regarding all lines of insurance except health insurance.’”
Lehmann noted that state insurance departments require insurers to file financial statements; however, he noted that “one central entity” compiles the data and does not make it available to the public free of charge.
Of course, he referred to the National Association of Insurance Commissioners (NAIC). “While the NAIC is not itself a regulator and has no statutory authority whatsoever, it nonetheless long has enjoyed a monopoly gatekeeper role for the reams of insurance financial data that are collected by state agencies using state taxpayer resources,” wrote Lehmann.
Regulators would quibble with the taxpayer resources observation because insurers have filed their data directly with the NAIC since the Seventies, but Lehmann’s overall point is well taken.
Lehmann viewed the FIO as a crowbar to break the NAIC’s hold on what would otherwise be public information, which he believed would foster competitive markets. “Indeed, the federal Freedom of Information Act,” Lehmann observed, “shall apply to any data or information submitted to the Office by an insurer or an affiliate of an insurer.
“Dodd-Frank is painstakingly specific in proscribing [sic] how FIO is to go about collecting the data it needs,” wrote Lehmann. “To avoid duplicative reporting requirements, it must turn first to state or federal regulatory agencies, or to publicly available sources, before making any direct requests of insurers or their affiliates,” he continued.
Furthermore, Lehmann noted: “The office does have subpoena power to collect information should an insurer refuse to furnish it voluntarily, but the law sets a fairly high evidentiary bar for establishing that the subpoena is necessary.”
Barriers please!
The property insurance sector proved not to be such a champion of free market capitalism, as its representatives often claim to be. The FIO found out right away that the insurance sector would not provide the data to a federal agency. No one wants a barrier to commerce until someone tries to take one away.
The carriers clearly did not want to set a precedent for federal oversight of the sector. Nor did the carriers want any identifiable data to end up in the public domain. Friends of the insurance sector in both chambers of Congress filed bills designed to close the FIO or prohibit the office’s ability to collect data. Many advocates for the property insurance sector argued that the zip code level data could be “misinterpreted” … without mentioning redlining.
In October of 2022, consistent with a requirement of the FIO Act, the office approached state insurance regulators to secure insurance sector data. The state officials stonewalled the FIO.
In the November 2, 2023, edition of the Federal Register, the FIO published a notice for public comment announcing its intention to gather data from the property insurance subsector. “Under FIO’s data collection, FIO will obtain consistent, granular, and comparable homeowners insurance data that is not otherwise publicly available on a nationwide level,” explained the notice.
Furthermore, the FIO opined, the “nationwide view is critical to understanding how climate-related financial risks impact families and individuals across state markets and the United States, and how these effects could impact the broader financial system.”
The standoff continued until March 8, 2024, when the FIO accepted a deal whereby the NAIC will function as an intermediary between subsets of carriers and state regulators on one side and on the other side the FIO.
The NAIC immediately published an 82-question document used as a “data call” communicated to 400 property insurance carriers utilizing the regulatory powers of participating insurance departments. Of course, the term “participating insurance departments” should be understood as recognizing that some departments continued to stonewall the FIO project.
Nevertheless, the NAIC could offer the FIO a face-saving deal that represents around 80% of the national property insurance premiums. Furthermore, the NAIC will deliver the data broken down by zip code, although not all states require zip code level data.
It appears that the FIO could have issued subpoenas directly to obtain the data, but that would have launched a cluster of time-consuming litigation. The FIO’s climate-data collection project was already years past its deadline.
The participation of the NAIC accomplishes several aims: 1) The FIO will receive the data without protracted litigation; 2) The NAIC asserts that as a private association it is not subject to Freedom of Information Act requirements in any jurisdiction, so raw industry data will not be placed in the public domain; and, 3) The NAIC will “anonymize” the data so the FIO will not have the opportunity to study individual companies. In other words, the NAIC acts as a data laundry.
Utopia declared
The Department of the Treasury and FIO chose to declare victory and celebrate the deal. Secretary of the Treasury Janet L. Yellen said, “Americans across the country are seeing the affordability and availability of their insurance policies decline as a result of increasingly severe climate-related disasters. I’m pleased that the [FIO], state insurance regulators, and the NAIC are collaborating on this important data collection. Analysis of homeowners insurance data is essential to understanding the market impacts on consumers and helping policymakers across the country respond appropriately to the risks.”
The NAIC welcomed the business. The association will launder the industry data through its servers and remove the stains of any … attributable … redlines. One may also assume that this effort will provide the NAIC with the raw material for new database sales products—a very profitable revenue stream for the nonprofit corporation.
The Professional Insurance Agents welcomed the agreement. “In a win for PIA, consumers, and supporters of the state insurance regulatory system, the [FIO] announced that it was abandoning its unprecedented effort to collect data on climate-related risks from property and casualty insurance carriers on behalf of the federal government.”
Even the NAIC consumer advocates gave positive quotes about the deal to various news outlets, although they celebrate FIO’s activity while pointing out the NAIC’s habit of nonperformance.
The Consumer Federation of America (CFA) published a news release announcing: “The nation’s leading insurance consumer advocacy organizations, CFA, the Center for Economic Justice (CEJ), and Public Citizen today thanked the U.S. Department of the Treasury’s [FIO] for successfully pushing state insurance regulators to start collecting the insurance company data needed to monitor property insurance markets after years of inaction at the [NAIC].”
The results of FIO’s analysis are expected in the Fall of 2024.
The author
Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.
