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March 30
08:48 2022


NAIC’s letter to the Federal Insurance Office is unfettered by details

“Given the long–term threat and the short–term nature of politics, the failure of policymakers to address climate change, … is an existential threat.”

—Evan G. Greenberg
Chairman and Chief Executive Officer
Chubb Limited/Chubb Group 

 By Kevin P. Hennosy

On November 11, 2021, the National Association of Insurance Commissioners (NAIC) answered a request for information from the Federal Insurance Office (FIO) with an 11-page letter purportedly dealing with “the insurance sector and climate-related financial risks.”

The phrasing of the FIO request delivers a diplomatic way of asking, “What is climate change costing insurers?”

The NAIC letter provides a fairly comprehensive review of activities conducted through the association’s insurance public policy development framework. And the letter suggests how each of these activities could have an impact on issues related to climate change.

Of course, the association could make the same tenuous claim to suggest that its activities have an impact on persons who lack health insurance, the threat of nuclear war, or the financial losses attributable to the age-old embarrassment of “halitosis.”

If the NAIC wanted to inform the FIO with usable information, the association would have limited its response to the following statement:

The NAIC has nothing to report at this time related to climate change-driven loss exposures of the insurance sector because most governors or state insurance regulators are climate change doubters or deniers and we do not want anyone to get mad at us. Please forget that we exist if you have follow-up questions related to the topic, which we do not want to mention.

Such a preface would provide an honest assessment of the political viewpoints of the nation’s insurance commissioners, directors, and superintendents. Whether one believes that consensus opinion is a good thing or bad thing, it explains why there is no national assessment of the insurance sector and climate-related financial risks.

Now the NAIC might say in response to my suggested preface, “We could not say that because it could embarrass some of our members!”

I disagree. At this point in the debate over climate change, doubters and deniers believe their viewpoint with such vehemence that they have no shame in holding their opinion. Certainly, the minority of state regulators who accept the overwhelming assessment of the scientific community that human-driven climate change is a growing problem would not be embarrassed by their position. Why not just state the truth?

But, truth-telling has not been a strength at the NAIC for nearly three decades now. When the powerful Chairman Rep. John Dingell “lost the gavel,” the NAIC lost its spine. Therefore, the FIO should review the NAIC letter and any subsequent communications with care. During that review, keep asking the same question: Did the NAIC state what regulators could do or what regulators do?

In most of the NAIC’s statements, the FIO will find that the NAIC letter discusses regulatory capabilities without offering a dab of evidence that regulators actually use those capabilities to monitor or regulate insurers’ exposure to climate risk.


The NAIC letter attempts to tie every aspect of financial solvency monitoring to climate-related financial risk. In addition, some of the activities that the NAIC described in the letter do not comply with an established definition of regulation.

For example, the letter states:

“The Own Risk and Solvency Assessment (ORSA) is a crucial tool we use to carry out our risk-focused surveillance as it provides information regarding insurer risk exposure, how they manage and control their risks, and their financial resources available to cover unexpected losses.”

The FIO staff should understand that the ORSA is a self-regulatory exercise and not the sort of state action envisioned by the drafters of the McCarran-Ferguson Act of 1945. The drafters stated their intent clearly in their Conference Committee Report, and the Supreme Court cited that report in F.T.C. v. Travelers Health Assn. (1960):

“When the moratorium period passes, the Sherman Act, the Clayton Act, and the Federal Trade Commission Act come to life again in the field of interstate commerce, and in the field of interstate regulation. Nothing in the proposed law would authorize a State to try to regulate for other States, or authorize any private group or association to regulate in the field of interstate commerce.” 91 Cong. Rec. 1483.

As such, the ORSA produces a report that includes only what the insurer chooses to include, which insurers file only in their domiciliary state. Or, as the NAIC describes it, “The model [act] requires insurers above a specified premium threshold to implement a risk management framework, prepare an ORSA, and file an annual report with their lead state supervisor.”

So, the ORSA is a report constructed by a “private group” and presented to one “lead state” with the expectation that that state will “regulate for other States.”

Houston, we have a problem.

Under the guidance supplied by Congressional drafters and cited by the Supreme Court, and noted above, there is no such thing as a “lead state” in the regulation of the business of insurance. Every state where a company operates must apply affirmative regulation, or else jurisdiction over insurance reverts to the FTC and Department of Justice Antitrust Division.

Furthermore, the FIO staff should understand that, even at the best ORSA has to offer, the private exercise can supply only a company-by-company perspective of a worldwide problem. No motivated regulator could use the ORSA exercise to understand a systemic risk exposure.

The NAIC tries to dress ORSA up as a savage watchdog. “Insurers must identify and assess their exposure to all relevant and material risks with the potential to impact their current and prospective solvency position [emphasis added]. In addition, insurers are required to stress their potential exposures and demonstrate that they have sufficient capital available to cover their risk exposures [emphasis added].”

What criminal or civil penalty holds companies accountable for compliance with these “requirements?” Does the NAIC even suggest accountability by including a Criminal Enforcement Pro-vision in its “model act?” Of course, not.

The NAIC’s fairy-tale description of the state regulatory system continues: “Given these requirements, insurers, particularly property and casualty carriers, routinely provide information in their annual ORSA filings to regulators on climate exposures relevant to their unique profile, whether related to increased exposure to catastrophic events or exposure to transition risk in their investment portfolios.”

If state officials have such information willingly provided by insurers, why didn’t the association compile it and provide it in their response to the FIO request?

Although based on the NAIC description of ORSA, one would assume that state insurance departments bulge at the walls from useful and prompt information on climate-driven financial risk. The letter’s tone is reminiscent of an infomercial spokesperson yelling into the camera: “Wait, there’s more!”

The letter writers from the NAIC displayed the nerve to mention the Insurer Climate Risk Disclosure Form. In the October 2020 issue of Rough Notes, this column discussed the form and the failure of states to require its use by insurers. To date, only 15 state jurisdictions ask insurers to complete and file the form.

The NAIC letter also tries to spin several other aspects of “solvency oversight” as a means to analyze insurers’ exposure to climate risk. These aspects of the system include: Financial Data Collection, Financial Condition Examiners Handbook, and the Risk-Based Capital Program.

Extending the influence of these solvency-related activities touted by the NAIC reminds me of a George Carlin joke where he observed, “Mother’s milk leads to heroin.” Both Mr. Carlin and the NAIC make an ad absurdum argument.

The relationship

In 1969, the Supreme Court defined the scope of actions required of the states to qualify to hold the congressionally delegated authority over insurance. The court’s decision in SEC v. National Securities, Inc., 393 U.S. 453 (1969) struck down an action by the Arizona Department of Insurance that which sought to protect the shareholders of an insurer. The court ruled that a company’s relationship with shareholders was outside of the authority that Congress delegated to the states through the McCarran-Ferguson Act. The court’s decision defined the scope of states’ duty to regulate all the core aspects of insurance: “The relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, and enforcement—these were the core of the ‘business of insurance.’”

To the extent that the states complete that duty, Congress stayed the application of Federal Trade Commission enforcement and antitrust law to insurance.

At the time of that decision, lawmakers assumed rate regulation through state action was necessary to meet the definition of “reliability.”

Today, most states place their faith in an occult adherence to the power of “competitive markets” to regulate the relationship between insurer and insured. That was not what Congress and several decades of court opinions had in mind.

If Congress had favored that approach, it never would have supplied authority over insurance to the states. Congress would have left unfettered the Supreme Court’s 1944 ruling that insurance is interstate commerce subject to federal authority under the Commerce Clause of the Constitution.


The NAIC letter conveyed to the FIO that the states provide much more affirmative regulation to insurance rates than is accurate. “As state insurance regulators, we ensure that premiums are not excessive, inadequate, or unfairly discriminatory, and that insurance companies remain solvent and are able to pay policyholder claims.”

During this activity, the NAIC infers that state officials may learn more about climate-related risks of financial loss. Yes, they might. But that haphazard observation does not inform the conversation initiated by the FIO.

For example, most states have deregulated commercial lines property and casualty insurance in accordance with an NAIC model law. In those jurisdictions, no one regulates or even oversees the “relationship of insurer and insured.” So, the state officials in deregulated states do not command the ability to learn more about the insurance sector’s exposure to climate change-driven monetary loss.

The NAIC letter, like most documents produced by the association, seems crafted to offend no state official. The association’s value to the policy development process continues to diminish.

Existential threat

Not everyone in the insurance sector is as cagy about the need to monitor climate change-driven financial losses, as NAIC. In a 2018 letter to shareholders, Evan G. Greenberg, chairman and chief executive officer, Chubb Limited/Chubb Group, discussed how climate change impacts perils that produce financial losses submitted to the business of insurance as claims.

“Given the long-term threat and the short-term nature of politics, the failure of policymakers to address climate change, including these issues and the costs of living in or near high-risk areas, is an existential threat.”

An existential threat deserves a stronger response than the NAIC’s haphazard index of activities that might, or might not, supply information that the FIO seeks. The NAIC seems lost in the “short-term nature of politics.”

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.



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