New York Department of Financial Services Furthers Diversity, Equity and Inclusion in the Insurance Industry
New York Department of Financial Services Issues Proposed Guidance on Managing the Financial Risks from Climate Change
Legal Development 10 May 2021 10 May 2021
Insurance & Reinsurance
The New York Department of Financial Services continues to take an active role in addressing climate change issues by progressing climate and sustainability initiatives.
The New York Department of Financial Services (“NYDFS”) continues to take an active role in addressing climate change issues by progressing climate and sustainability initiatives. As we had previously discussed, the NYDFS took steps at the end of last year to address these issues, including by setting forth in a September 2020 Circular Letter its expectations for the insurance industry regarding identifying and managing financial risks from climate change and announcing that it would host a series of “knowledge exchange” webinars for industry participants to discuss their efforts to manage financial risks from climate change.
On March 25, 2021, the NYDFS released for public comment proposed guidance for New York domestic insurers relating to managing the financial risks from climate change. The proposed guidance is open for public comments until June 23, 2021. It was developed in part from the NYDFS’ review of insurance companies’ Enterprise Risk Management (“ERM”) reports and Own Risk and Solvency Assessments (“ORSAs”), responses to the National Association of Insurance Commissioner’s Climate Risk Disclosure Survey (discussed previously here) and other voluntarily disclosed materials.
The proposed guidance sets forth the NYDFS’ expectations regarding how insurers should assess the climate-related financial risks that they face and how they can approach addressing such risks through, for example, corporate governance, business models and strategies, effective risk management framework, scenario analysis, and public disclosure in order to better inform the market. The NYDFS recognizes that, due to factors such as size and nature of business, the approach that each insurer takes to addressing climate risks will be relatively unique, and so it expects each insurer to inform itself of the level of risk that it faces and to devise a proportionate approach to manage such risk.
The release of the proposed guidance is part of the NYDFS’ current timeline for climate change issues in 2021 (which timeline can be found in the NYDFS’ FAQs for the Insurance Industry). In addition to the proposed guidance, the NYDFS held a webinar on April 8, 2021 with interested parties to discuss the guidance and plans to issue the final guidance after incorporating feedback it receives sometime in the third quarter of 2021. The NYDFS also stated in the FAQs that it currently has no plan to issue any regulations related to climate regulatory supervision beyond the previous amendments to Insurance Regulation 203 regarding ERM and ORSA to include risks related to climate change among the risks that should be addressed by insurers.