Insurers' Climate-Risk Governance Improves as Impacts Worsen

Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...

By Andrea Vittorio

Oct. 20 — Chubb Group, MetLife Group and other property and life insurers are getting better at overseeing risks posed by the effect of climate change on their clients and investments even as its impacts get worse.

Some of their biggest gains in recent years have come in the governance of climate issues at the board and executive level, according to a Ceres review of disclosures to state regulators. Those gains were not shared by health insurance companies, which Ceres says remain largely unprepared to address climate risks.

The last time the nonprofit looked at companies’ responses to a survey by the National Association of Insurance Commissioners (NAIC), it found “a profound lack of preparedness” for a changing climate. Most insurers still landed in the bottom half of Ceres’ latest ratings, released Oct. 20.

But the number of top performers has more than doubled, from nine in 2012 to 22 in 2014, with insurers writing more than $5 billion in direct premiums showing the most marked improvement.

“They're not unprepared” anymore, Ceres' Max Messervy, lead author of the report, told Bloomberg BNA. Still, he said there's room for even more improvement, especially among health insurers. None of the health insurers evaluated earned a high-quality rating on governance or for their disclosures overall.

Better Disclosure

How well insurance companies governed climate risks was associated with higher quality climate disclosure, the report found.

One of the top scorers was property and casualty insurer Hartford Financial Services Group, which has a separate environment committee that reports to its board. “As a 200-year-old company, we understand that to keep going and to have kept going for two centuries, we have to manage not just our climate-change risks but also be good stewards” in other areas as well, Jay Bruns, who leads environmental stewardship at the Hartford, told Bloomberg BNA in an interview.

Mary O'Malley, vice president of corporate governance at Prudential Financial, said she regularly updates a board committee on “strategic issues like carbon risks in investment portfolios.” Sustainability issues are also factored into the life insurer's director-nomination process and real estate investments, she said.

Prudential was one of nine life and annuity insurers that received high marks for considering climate risks in their investment portfolios, up from only two before.

Ceres' report comes against a backdrop of more extreme weather events. As of September, the U.S. has seen 12 weather and climate disasters with losses exceeding $1 billion each, well above the 1980 to 2015 average of about five events per year, according to the National Oceanic and Atmospheric Administration.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

For More Information

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.