NAIC Adopts New Insurance Company Climate Risk Disclosure Standard

A bipartisan group of US insurance regulators has adopted a new standard for insurance companies to report their climate-related risks, in alignment with the international Task Force on Climate-Related Financial Disclosures (TCFD).

According to a statement from the US National Association of Insurance Commissioners (NAIC), the TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public to better understand the climate-related risks to the US insurance market.

The effort was led by Insurance Commissioners Ricardo Lara of California and David Altmaier of Florida, cochairs of the NAIC Climate Risk & Resiliency Task Force. The task force was established in 2020 to coordinate all the NAIC's domestic and international efforts on climate-related risk and resiliency issues.

The task force developed the new TCFD-aligned survey over a 14-month public participation process. It marks the first update to the NAIC's Climate Risk Disclosure Survey approach since it was created in 2010.

According to the NAIC, the task force determined that implementing a TCFD-aligned disclosure framework would enhance transparency around how insurance companies manage climate-related risks and opportunities while also incorporating international best practices.

Insurance regulators from France, Switzerland, and the United Kingdom currently require TCFD-aligned reports, the NAIC said, while US financial regulators such as the Securities and Exchange Commission are also taking steps toward requiring TCFD-aligned disclosures for other financial institutions.

Under the new standard, insurance companies required to respond to the annual NAIC Climate Risk Disclosure Survey will need to comply with TCFD reporting by November 2022. Fifteen states representing nearly 80 percent of the US insurance market have committed to using the NAIC survey in 2022 for insurance companies licensed in their jurisdictions, the NAIC said.

While 28 insurance companies provided TCFD-compliant reports in 2021, the number will grow to nearly 400 insurance companies and groups as a result of the adoption of the new standard, the NAIC said.