Public Citizen Testimony for the California Workshop Examining Catastrophe Modeling and Insurance
By Carly Fabian
On behalf of Public Citizen, a national public interest advocacy group with more than 500,000 members and supporters, including nearly 100,000 members in California, I welcome the opportunity to comment in support of the development of a public catastrophe model.
Within Public Citizen’s Climate Program, our advocacy focuses on encouraging financial institutions and regulators to act on climate-related risks, including through the use of forward-looking data and tools. However, as a consumer advocacy organization, we also believe that transparency is essential, particularly given the limitations of catastrophe models, and that any benefits of these models should also be made available to households, small businesses, communities, and local governments.
Californians are not alone in expressing concern about these models and the need for transparency. A recent report from the White House’s Council of Advisors on Science and Technology notes that proprietary catastrophe models suffer from a lack of transparency, an overreliance on short historical records, and a tendency to ignore or obscure uncertainty. Additionally, the limitations of both wildfire models and the industry’s ability to integrate climate models into catastrophe models are well-recognized, even by the industry itself.
While the industry may argue that allowing the use of these models in California will lead to further investment and development, simply greenlighting flawed models would be tantamount to allowing insurers to experiment on the public, with little or no recourse for errors that could price people out of their homes. At a time when low-income communities and communities of color are disproportionately at risk from climate disasters, the use of black-box models whose biases cannot be examined would be particularly unacceptable.
Additionally, as the White House report notes, the high cost to access these models makes them prohibitive for most users who would be affected by them, including households, communities, and local governments. At a time when there is growing national concern about the division between private climate services and the public’s access to climate data, we urge the Department to take this as an opportunity to lead and to recognize that California’s strong consumer protections give it an advantage in doing so. Just as climate data should be considered a public good, advancements in catastrophe modeling should be used for the public benefit. Developing mechanisms for oversight of proprietary models by regulators and consumer advocates with a high burden of proof on the industry would be a bare minimum step. The most effective approach to protect consumers, allow proper public participation, and provide public benefits is to develop a public model.
Any reform deal with the industry to permit catastrophe modeling—including an open, public modeling—should require them to use forward-looking assessments to evaluate their transition risks from fossil fuels and mitigate their own contributions to climate change by aligning their investments and underwriting with science-based targets.
Insurers are increasingly paying lip service to this idea, and some, especially in Europe, have begun taking significant steps. But the most recent data shows the industry had over half a billion dollars invested in fossil fuels, effectively profiting from harming their policyholders and undermining their own markets. A report we released just this morning documents that while insurers like AIG, Liberty Mutual, and Berkshire Hathaway are retreating from homeowners, they continue to insure coal mines, sometimes in ways that appear to contradict their own public commitments. It is bad business for insurers to support an industry that is destabilizing and increasingly even destroying insurance markets, and the Department should stop that practice for market-preservation reasons. Further, as a matter of consumer protection, it is unconscionable for insurers to invest policyholders’ money in an industry that is radically increasing threats to their lives and property, and in the meantime driving up their insurance costs and making many of their homes uninsurable.
Insurance industry trade associations have consistently lobbied to weaken and delay climate-related disclosure requirements, downplaying the financial risks from climate change and highlighting the uncertainties and limits of data and models to do so. The industry cannot have it both ways and cannot expect the public to pay the price for uncertainty through both higher premiums and risky financial strategies. The industry has now spent months declaring that climate data and modeling is essential, making clear that the climate crisis poses a grave threat to insurance markets. The Department must provide not just a band-aid reform of catastrophe modeling, but meaningful reform that goes to the root of the problem: a phaseout of support for fossil fuels in excess of science-based climate targets. If the Department fails to address insurers’ support for fossil fuels, California will face another insurance crisis before long, with a new set of demands from industry. It would not just be a giveaway to industry, but one that virtually guarantees pressure for additional giveaways soon.
It would not be unprecedented for the Department to recognize that insurers can mitigate risk by reducing emissions in their value chains. New York’s Department of Financial Services has issued guidance requiring insurers to mitigate their climate risks, and this guidance suggests emissions reductions as a risk mitigation strategy. Connecticut’s Insurance Commissioner is now required to incorporate state emissions reduction targets into insurance supervision and regulation. Moreover, Commissioner Lara himself previously promised to develop a roadmap that would align with the goals of the Net Zero Insurance Alliance, an international alliance that requires insurance companies to commit to reducing their emissions in line with net-zero by 2050, although recent progress reports on his roadmap show no progress towards that goal.
If an insurance deal does not include net-zero requirements for insurers, it’s only California’s homeowners who will be expected to mitigate their risks from climate change; the powerful companies who finance, insure, and profit from the climate crisis will not.