Sep 1, 2021 - Energy & Environment

Treasury hopes to tackle climate insurance risks

Homes, cars and streets are overwhelmed by water in Lafitte, Louisiana, after Hurricane Ida.
Homes, cars and streets are overwhelmed by water in Lafitte, Louisiana, after Hurricane Ida. Photo: Michael Robinson Chavez/The Washington Post via Getty Images

The Treasury Department just launched a new effort to grapple with how climate change is affecting the insurance market and, by extension, financial markets more broadly.

Driving the news: Treasury, via the Federal Insurance Office, is soliciting information on topics like data needed to measure and assess the sector's climate-related risk exposures and "climate-related issues or gaps in the supervision and regulation of insurers."

  • More broadly, the office is looking to assess the potential for "major disruptions" of private insurance in markets especially vulnerable to climate change.
  • The Wall Street Journal points out that the effort will affect FIO's work with states, which are the primary insurance regulators.

What they're saying: "The increased frequency and severity of climate-related disasters, as well as the magnitude of associated insured losses, highlight the significance of these climate-related financial risks and the role of insurers in responding to them," the notice states.

Threat level: Treasury notes that some consumers are finding it increasingly tough to find affordable property insurance in some markets.

  • The department is also emphasizing insurers' wider role in financial markets, noting that life insurers are among the largest investors in U.S. capital markets.
  • "As owners of significant amounts of assets, insurers could be vulnerable to potential decreases in asset values arising from the transition towards a low-carbon economy," Treasury said.
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