As Climate Change Drives Insurance Crisis, Groups Call on FSOC and Regulators to Protect Economy
WASHINGTON, D.C. – As insurers announce another year of massive climate-related losses in the third quarter, a coalition of environmental, financial and consumer protection organizations are calling on the Financial Stability Oversight Council (FSOC) to act on climate-related financial risks to protect the economy from destabilization in insurance markets.
In the letter addressed to Treasury Secretary Janet Yellen, who chairs the council, 25 groups including Public Citizen, Sierra Club, NRDC, Connecticut Citizen Action Group, Positive Money US, Revolving Door Project, and Sunrise Project called on FSOC to actively manage and reduce climate-related risks posed by the insurance industry to the stability of the financial system.
“Climate change poses a dangerous challenge to insurance providers across the country, yet many of the largest insurers continue to underwrite and finance the fossil fuel industry,” said Anne Perrault, finance policy counsel with Public Citizen’s Climate Program. “Regulators need to take notice and act. As insurers go bankrupt in or flee from some high risk areas, and raise premiums and restrict coverage in others, communities are suffering—with marginalized communities suffering most. Urgent action is required to address threats the industry is both facing and creating,”
Created in the wake of the 2008 financial crisis as part of the Dodd-Frank Reform measures, FSOC is empowered to identify and monitor risks throughout the U.S. financial system, and respond to emerging threats to the stability.
Among the recommendations, the groups call on FSOC to finalize guidance that would enable FSOC to designate nonbank financial companies for supervision and regulation by the Federal Reserve Board, and to use that guidance to designate large insurers tied to climate risk. Further, the groups call on FSOC to address the financial stability threat caused by a growing insurance gap, particularly in low-to-moderate income communities and communities of color.
“For decades, the insurance industry has been warned that damages from climate change will cause major stress for their business,” the organizations write in the letter. “Insurers have also been warned that their financing and underwriting of the fossil fuel industry is central to generating and exacerbating these climate-related financial stability risks and that insurers are exposing themselves to transition risks that could manifest in the form of unexpected impairments and defaults.”
Over the past 10 years, insured losses have grown rapidly. In the first six months of 2023, insurer Swiss Re estimated losses in excess of $120 billion, 46% higher than the 10 year average for the same time period.
On Thursday afternoon, the U.S. House Financial Services Committee’s Subcommittee on Housing and Insurance will hold a hearing on the factors influencing the high cost of insurance for consumers. The hearing, previously scheduled for October 24th, was postponed as House Republicans scrambled to elect a Speaker. The letter to FSOC comes the same week as over 30 groups sent an open letter to the International Association of Insurance Supervisors pushing the global body for proactive, consistent, and more decisive regulatory action.
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