Audit, Compliance and Risk Blog

US Federal insurance Office seeking information on climate-related financial risks

Posted by Jon Elliott on Mon, Sep 27, 2021


Organizations around the world are responding to the latest climate-related risk assessment produced by the Intergovernmental Panel on Climate Change (IPCC), which replaced earlier cautionary information with an urgent warning that climate change is “widespread, rapid, and intensifying.” On August 31, the US Federal Insurance Office (FIO), an element of the Department of the Treasury, published a “Request for Information on the Insurance Sector and Climate-Related financial Risks” (RFI) in the Federal Register, posing 19 questions it will use to focus its application of climate-related risks to the domestic insurance sector. Insurers should obviously be interested in these questions and their answers, but any entity that buys insurance should consider them as well. The remainder of this note summarizes FIO’s questions.

What is FIO and what does it do?

Within the US, insurance regulation is overwhelmingly directed by states, not by the federal government. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) includes provisions related to insurance, notably the creation of FIO to “monitor all aspects of the insurance industry,” focusing on regulatory gaps that may have contributed to the financial crises early in this millennium, and on identifying other flaws that may hamper the insurance sector. FIO produces reports on insurance issues, provides a non-voting member to the national Financial Stability Oversight Council (which is best known for stress-testing financial entities and determining which are “too big to fail”), coordinates federal insurance-related activities, and develops federal policy on “prudential aspects of international insurance matters.”

In addition, President Biden’s May 20 Executive Order (EO) 14030 (“Climate-Related Financial Risk”) includes specific direction that FIO “assess climate-related issues or gaps in the supervision and regulation of insurers … and the potential for major disruptions of private insurance coverage in regions of the country particularly vulnerable to climate change impacts.”

How is FIO approaching climate-related risks?

FIO notes that climate-related risks are already materializing as more frequent and severe weather disruptions, which generate expensive payouts for insurers. Insurers are also huge investors in assets and capital markets, with investments increasingly subject to disruption and sometimes “stranding” because of climate change. FIO also notes that climate change stresses economic and capital markets, and human and environmental systems. FIO’s new request for information notes that earlier reports have identified several types of risks, characterized as:

  • Physical risks – from changing weather and climate

  • Transition risks – as economic systems adjust to climate change, including the likelihood of low(er)-carbon economic futures

  • Liability risks – when actors are held liable for economic and environmental losses related to their actions and inactions

Insurance companies and underwriters face all these risks.

FIO’s RFI identifies three initial climate-related priorities:

  • Insurance supervision and regulation

  • Insurance markets and mitigation/resilience

  • Insurance sector engagement

To support these priorities, FIO intends for responses to the RFI help it to improve its understanding of:

  • Which data elements are necessary to accurately assess climate risk

  • Which data elements remain unavailable

  • How FIO could collect this data and make it available to stakeholders as needed

What comments are FIO seeking?

The RFI poses 19 questions, and invites comments – including, as appropriate, expressions of viewpoints and data. Its questions are:

  • EO 14030 responsibilities

  1. How FIO should assess and implement its responsibilities under EO 14030

  • FIO climate-related priorities

  1. Views on FIO’s 3 climate-related priorities (above) and planned activities, and any suggested alternatives

  • Climate-related data collection and dissemination authorities

  1. Specific types of data needed to measure and assess insurance sector exposures to climate-related financial risk

  2. Key factors for the insurance sector in developing standardized, comparable, and consistent climate-related financial risk disclosures

  3. How FIO should use its data collection and dissemination authorities to research, monitor, assess and publicize climate-related financial risk in insurance markets

  4. likely advantages and disadvantages of a verified, open-source, centralized database for climate-related information on the insurance sector

  • Insurance supervision and regulation

  1. How FIO should identify and assess climate-related issues or gaps in insurer supervision and regulation, including potential impact on financial stability

  2. Key structural issues that could inhibit insurance supervisors’ ability to assess and manage climate-related financial risk in the insurance sector

  3. How approaches from other jurisdictions inform issues and gaps

  • Insurance markets and mitigation/resilience

  1. Factors to consider when identifying and assessing potential for major disruptions to insurance markets for particularly vulnerable sectors

  2. Markets currently facing major disruption due to climate change impacts

  3. Action insurers have taken in response to threat of increased economic losses from climate-related disasters

  4. What, if any, models used to underwrite climate-related risks

  5. How FIO should assess availability and affordability of insurance in U.S. markets particularly vulnerable to climate change impacts

  6. Effective public-private partnerships or collaboration

  • Insurance sector engagement

  1. Views on additional ways for FIO to engage with the insurance sector on climate-related issues

  2. How FIO should assess insurers’ efforts to help meet US climate goals, include zero emissions by 2050

  3. What state roles or actions can help encourage insurance sector transition to low emission and adaptive/resilient economy

  • General

  1. Any other relevant comments

The text of the RFI includes additional clarification of FIO’s intentions and desires regarding some of these questions.

What’s next?

Comments are due by November 15, 2021. FIO is proceeding to develop climate-related activities and initiatives, beginning with the three initial priorities identified above. These actions are likely to affect insurance sector responses to climate change issues.

Self-assessment checklist

Has the organization assessed potential impacts of climate change on its activities and investments?

Has the organization identified which of these activities and investments are presently insured for climate-related impacts?

Has the organization identified which of these activities and investments are potentially insurable for climate-related impacts in existing insurance markets?

Has the organization identified how changes in insurance markets could affect its access to insurance for climate-related impacts?

Is the organization preparing comments in response to FIO’s request for information?

Where Do I Go For More Information?

- FIO Request for Information on the Insurance Sector and Climate-Related financial Risks (/1/21 Federal Register)

 -  6th report (2021)

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About the Author

Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years. 

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at:

Tags: climate change, Environment, FIO, IPCC, RFI