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Federal Register / Vol. 86, No. 166 / Tuesday, August 31, 2021 / Notices observed changes in extremes such as heatwaves, heavy precipitation, droughts, and tropical cyclones, and, in particular, their attribution to human influence, has strengthened since 2013. 1 The United States has experienced a dramatic increase in the frequency and severity of climaterelated disasters with a corresponding increase in economic losses in the past 40 years.2 Economic growth combined with changing socioeconomic trends, such as urbanization and the migration patterns to areas at higher risk of climate-related disasters, are increasing the financial risks associated with the effects of climate change. The increased frequency and severity of climaterelated disasters, as well as the magnitude of associated insured losses, highlight the significance of these climate-related financial risks and the role of insurers in responding to them.3
Additionally, some insurance consumers are increasingly unable to find affordable and available property insurance coverage in certain insurance markets.4
The impact of climate change also affects insurers through their broader role in financial markets. For example, the U.S. life insurance sector is one of the largest investors in the U.S capital markets, with over $4.7 trillion in investments held in general accounts at year-end 2020.5 As owners of significant
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1 IPCC,
Climate Change 2021: The Physical Science BasisSummary for Policymakers, 7
August 2021, SPM10, https www.ipcc.ch/report/
ar6/wg1/downloads/report/IPCC_AR6_WGI_
SPM.pdf.
2 See, e.g., Adam B. Smith, 20102019: A
Landmark Decade of U.S. Billion-Dollar Weather and Climate Disasters, NOAA Climate.gov Blog, January 8, 2020, https www.climate.gov/newsfeatures/blogs/beyond-data/2010-2019-landmarkdecade-us-billion-dollar-weather-and-climate. FIO
is using the term climate-related disasters to refer to the type of weather-related events such as wildfires, floods, hurricanes, etc. that may be produced or exacerbated by climate change, as distinct from non-weather related, natural events such as earthquakes and tsunamis.
3 Aon, Weather, Climate & Catastrophe Insight Annual Report 2020 2021, 9, https
www.aon.com/global-weather-catastrophe-naturaldisasters-costs-climate-change-2020-annual-report/
index.html?utm_source=region&utm_
medium=africa&utm_campaign=natcat21 Aon 2020 Cat Insight Annual Report.
4 See, e.g., Christopher Flavelle, Wildfires Hasten Another Climate Crisis: Homeowners Who Cant Get Insurance, New York Times, September 2, 2020, https www.nytimes.com/2020/09/02/
climate/wildfires-insurance.html; Emma Kerr, Heres How Youre Already Paying for Climate Change, U.S. News & World Report, June 10, 2021, https money.usnews.com/money/personalfinance/spending/articles/heres-how-youre-payingfor-climate-change.
5 Bests Special Report: First Look: 12 Month 2020
Life/Annuity Financial Results March 23, 2021, https www.businesswire.com/news/home/
20210323005711/en/Best%E2%80%99s-Special-

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amounts of assets, insurers could be vulnerable to potential decreases in asset values arising from the transition towards a low-carbon economy.6
More broadly, climate-related financial risks may present challenges to the stability of the financial system of which the insurance sector is an important part including as shocks that increase financial system vulnerabilities. In a 2020 report, the Financial Stability Board FSB
described climate-related risks as falling into three categories:
Physical risks are the possibility that the economic costs of the increasing severity and frequency of climatechange related extreme weather events, as well as more gradual changes in climate, might erode the value of financial assets, and/or increase liabilities. 7
Transition risks can arise from the technological, market, and policy changes needed to adjust to a low carbon economy and their effects on the value of financial assets and liabilities.
Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to organizations.8
Liability risks may arise when parties are held liable for losses related to environmental damage that may have been caused by their actions or omissions. 9
The same FSB report described how these risks might affect financial stability and highlighted the potential for new risks introduced from the response of the global financial system to climate-related shocks.10
An assessment of how climate-related financial risks may affect the insurance sector should consider physical risks, transition risks, and liability risks. More specifically, the assessment should include how the life and property &
casualty P&C insurers business models including their underwriting Report-U.S.-LifeAnnuity-Industry%E2%80%99sNet-Income-Cut-Nearly-in-Half-in-2020.
6 New York Department of Financial Services, An Analysis of New York Domestic Insurers Exposure to Transition Risks and Opportunities from Climate Change June 10, 2021, https www.dfs.ny.gov/
system/files/documents/2021/06/dfs_2dii_report_
ny_insurers_transition_risks_20210610.pdf 7 FSB, The Implications of Climate Change for Financial Stability November 23, 2020, 4, 16, https www.fsb.org/wp-content/uploads/
P231120.pdf FSB Climate Change Implications Report.
8 See FSB Climate Change Implications Report;
Task Force on Climate-Related Financial Disclosures, Recommendations of the Task Force on Climate-related Financial Disclosures June 15, 2017, 13, https www.fsb-tcfd.org/publications/
final-recommendations-report/.
9 FSB Climate Change Implications Report.
10 FSB Climate Change Implications Report, 1.

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activities, market activities, and investment activities are affected by each category of risk.11
The lack of available data complicates the ability to conduct such assessments.
Government and private sector stakeholders have noted the significant issues caused by the lack of available data to assess climate-related financial risk within the insurance sector.12 These stakeholders could all potentially benefit from high-quality, consistent, comparable, and reliable data for their risk management, disclosures, and forward plans to assess and address climate-related financial risks. State regulatory tools, such as the Own Risk and Solvency Assessment ORSA, may capture data on some climate-related financial risks if they are recognized by a reporting insurer as having a material impact on its solvency over the next one to two years, but these tools may be inadequate to assess climate-related risks, particularly over a longer time horizon. Additionally, only six states have regularly collected from insurers certain limited, high-level qualitative data directly focused on climate-related financial risks.13 No federal authority is collecting climate-related financial data specific to the insurance sector.
Executive Orders The Presidents May 20, 2021, Executive Order on Climate-Related 11 See, e.g., FSB Climate Change Implications Report, 23 noting that, if the materialization of climate related risks were to lead to large increases in insured losses from physical risks, this might reduce the degree to which households and companies could insure against these risks.
12 FSB Climate Change Implications Report, 28;
FSB and International Monetary Fund, The Financial Crisis and Data Gaps: G20 Data Gaps Initiative DGI2 The Fifth Progress Report Countdown to 2021 in Light of COVID19 October 2020, 7, https www.fsb.org/wp-content/uploads/
P071020.pdf; International Association of Insurance Supervisors and Sustainable Insurance Forum, Application Paper on the Supervision of Climaterelated Risks in the Insurance Sector May 2021, 9, 1213, 28, https www.iaisweb.org/page/
supervisory-material/application-papers/file/97146/
application-paper-on-the-supervision-of-climaterelated-risks-in-the-insurance-sector; How Insurance Companies Can Prepare for Risk from Climate Change, Deloitte, https
www2.deloitte.com/us/en/pages/financial-services/
articles/insurance-companies-climate-changerisk.html.
13 National Association of Insurance Commissioners NAIC Center for Insurance Policy and Research, Assessment of and Insights from NAIC Climate Risk Disclosure Data November 2020, 56, https content.naic.org/sites/default/
files/cipr-report-assessment-insights-climate-riskdata.pdf. The six statesCalifornia, Connecticut, Minnesota, New Mexico, New York, and Washingtonuse the Insurer Climate Risk Disclosure Survey developed by the NAIC. The states require survey completion only by insurers that are regulated by them and who annually report $100 million or more in premiums and annuity considerations.

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