Insurance 2021 - the year ahead
In 2021, the increasing effects of climate change and the response from US insurance regulators will create both challenges and opportunities for insurers.
US insurance regulators will increase scrutiny of insurers' disclosures regarding and efforts to manage potential climate change risks. Such risks range from unprecedented losses from climate-related natural disasters to concerns about hits to insurers' investments in certain asset classes (such as fossil fuels as the shift to alternate energy sources proceeds in coming years). In 2021, US insurance regulators will continue undertaking various actions designed to encourage insurers' climate change risk management.
At the same time, US insurance regulators will likely increase their demands on insurers to accommodate the needs of insureds who are already being adversely affected by climate change. For example, the California Insurance Department's mandatory one-year moratorium on insurers non-renewing or cancelling residential property insurance policies for policyholders living near a declared wildfire disaster may serve as a model for other US insurance regulators seeking to retain the availability of insurance coverages for policyholders hit by climate change effects which coverages might not otherwise be commercially sensible for insurers.
US insurance regulators will also increasingly facilitate the development of innovative insurance products to mitigate the risk of climate change for prospective insureds. For example, some US insurance regulators may follow a similar approach to the New York Department of Financial Services, which recently entered into a memorandum of understanding with the New York State Energy Research and Development Authority whereby the two agencies will cooperate to spur the development of new insurance and financial products "with the potential to de-risk and accelerate the development and deployment of key low-carbon technologies".
Whatever the future holds in terms of climate change impacts, we are confident that US states will look to retain insurance coverage options for their insureds and try to attract and nurture the growth of new insurance products that could help address the impact of climate change in their jurisdictions.