Last Updated 2/11/2021

Issue: The economic cost of natural disasters has an immense impact on the U.S. economy. Natural catastrophes topped $232 billion in total costs in 2019, with insured losses covering $71 billion. Insured losses in 2019 were significantly lower than the record $157 billion in 2017 and $100 billion in 2018. In terms of insured losses, 10 of the nation's costliest catastrophes have occurred in the past two decades. Eight of these were hurricanes. Insurance plays a large part in helping with the economic recovery following catastrophic events. However, according to a 2019 Aon report, the portion of economic losses not covered by insurance (insurance gap) was $161 billion.

Background: Flood damage is a major source of uninsured losses for two reasons:

• Standard homeowners' policies do not cover flood.
• Many people do not purchase a separate policy.

Rising flood risks and the uncertain financial future of the National Flood Insurance Policy (NFIP) underscore the importance of growing the private flood insurance market. The NAIC adopted a best practices document to help facilitate the private flood insurance market. Recent advances in risk mapping and modeling have also helped the emerging private market grow by enabling private insurers to more accurately price risk. The federal Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) affirmed Congress’ intent that lenders can accept private flood insurance as an alternative to the NFIP. However, the definition and prescriptive conditions present a hindrance to the private market. 

The growing frequency and severity of natural catastrophes warrant greater focus on resiliency. For this reason, the NAIC adopted the Insurer Climate Risk Disclosure Survey (survey) in 2010. The survey asks eight questions that assess insurer strategy and preparedness in the areas of: 

• Investment.
• Mitigation.
• Financial solvency (risk management).
• Emissions/carbon footprint.
• Engaging consumers. 

The survey is currently administered on a mandatory and public basis through a multi-state effort led by California. The survey results can be found on the California Department of Insurance (DOI) Climate Risk Disclosure Survey webpage. Currently, the Center for Insurance Policy and Research (CIPR) is assessing the climate data to provide more in-depth information about how insurance companies are responding to climate change.  An update on the data findings and analysis process was provided in September 2020 at the NAIC's Virtual Insurance Summit.  A report analyzing the survey's 2018 quantitative data (PDF) was released in November 2020. The NAIC also revised the NAIC Financial Condition Examiner’s Handbook to provide examiners with guidance on questions to ask insurers regarding any potential impact of climate change on solvency. 

There has also been increased global engagement in the insurance sector on resiliency to climate-related risks. The Financial Stability Board's (FSB's) industry-led Task Force on Climate-related Financial Disclosures (TCFD) released its final recommendation in 2017 for a framework to identify, manage and disclose climate risks and opportunities. Likewise, in 2018, the European Commission presented its Action Plan on Sustainable Finance, underlining the importance of involving the finance industry in climate change mitigation.

Additionally, insurance supervisors began examining the impact of climate change through the Sustainability Insurance Forum (SIF) in 2016. In 2017, the SIF released a statement in support of the TCFD recommendations and implemented a survey process for supervisors to share their efforts to address climate risks. In 2018, the SIF and the International Association of Insurance Supervisors (IAIS) worked to develop guidance on climate change and insurance supervision.

Status: The rising likelihood of extreme and catastrophic weather events makes monitoring the frequency and impact of natural disasters a critical regulatory function. NAIC members have taken an active role in educating Congress and providing technical feedback on various proposals regarding natural catastrophes. Over the last several years, NAIC members have met with members of Congress and have testified on these important issues, stressing the role of the states in effectively managing a natural disaster response.

The Catastrophe Insurance (C) Working Group oversees the NAIC's efforts in this area. The Working Group is charged with:

• Evaluating potential state, regional and national programs to increase capacity for (re)insurance related catastrophe perils.
• Monitoring and assessing proposals that address disaster insurance issues at the federal and state levels. This includes:
  1. Assessing state efforts to foster private flood insurance and protect consumers
  2. Pressing for a long-term NFIP program; and
  3. Partnering with the Federal Emergency Management Agency (FEMA) and others to close the gap.

In July 2020, the NAIC announced the development of the Climate and Resiliency (EX) Task Force. The Task Force has been charged with: coordinating all of the NAIC’s domestic and international efforts on climate-related risk and resiliency issues, including dialogue among regulators and with industry, consumers and other stakeholders. In addition, the Task Force will:

• Consider appropriate climate risk disclosures.
• Evaluate financial regulatory approaches to climate risk and resiliency.
• Consider innovative solutions to climate risk and resiliency.
• Identify sustainability, resilience and mitigation issues and solutions related to the insurance industry.
• Take into consideration pre-disaster mitigation and resiliency and the role of state insurance regulators in resiliency as it makes recommendations.

2016
Regulators Respond to Disasters – NAIC Fall National Meeting 2016

This video shows disasters and response to wildfires in Tennessee, a tornado in Alabama and earthquakes in Oklahoma. It features then-NAIC President-Elect and then-Tennessee Insurance Commissioner Julie Mix McPeak. 
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2015
Regulators Respond to Disasters – NAIC Fall National Meeting 2015

NAIC members representing California, South Carolina, Texas and Washington discuss devastating floods and fires in 2015. 
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2013
Regulators Respond to Disasters in Arizona and Oklahoma

Then-Arizona Insurance Director Germaine Marks and then-Oklahoma Insurance Commissioner John Doak discuss disasters affecting insurance consumers in their states and the response coordinated by their departments, fellow regulators and the NAIC.
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2012
Regulators Respond to Superstorm Sandy

Members of the NAIC discuss the impact of Superstorm Sandy in 2012. They describe efforts of state insurance regulators to address the needs of insurance consumers and the market in the wake of historic losses.
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2011
Regulators Respond to Disasters

Members of the NAIC discuss the impacts of natural disasters in their states during 2011. They describe efforts of state insurance regulators to address the needs of insurance consumers and the market in the wake of historic losses.
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