In Insurance Circular Letter No. 15 (2020), dated September 22, 2020, New York’s Department of Financial Services (“DFS” or “NYDFS”) states, at a high level, that it expects all New York insurers to start integrating the consideration of the financial risks from climate change into their governance frameworks, risk management processes and business strategies and that it intends to publish detailed guidance consistent with international best practices on climate-related financial supervision and welcomes input from industry in that process. As a first step to support the industry, DFS will organize a series of global knowledge exchange webinars to allow industry participants to share their goals, experiences and lessons learned in their efforts to manage the financial risks from climate change.
DFS supervises and regulates the activities of nearly 1,800 insurers with assets totaling more than $4.7 trillion and ranging from global publicly traded companies to smaller operations. In the circular letter, DFS recognizes that climate change affects each insurer in different ways and to different degrees depending on factors such as the insurer’s size, complexity, geographic distribution, business lines and investment strategies. DFS appreciates that insurers do not have the same level of resources to manage these risks and are at different points in the process of incorporating these risks into their governance, strategy and risk management. Consequently, the circular letter states that each insurer should take a proportionate approach in its assessment, reflecting its exposure to the financial risks from climate change and the nature, scale and complexity of its business.
DFS provides examples of actions that each regulated insurer, regardless of its circumstances, should be taking now:
- consider designating a board member or a committee of the board, as well as a senior management function, to be accountable for the company’s assessment and management of the financial risks from climate change;
- have its enterprise risk management function and Own Risk and Solvency Assessment process address climate change as a reasonably foreseeable and relevant material risk and consider how it impacts risk factors such as investment risk, liquidity risk, operational risk, reputational risk, strategy risk and underwriting risk; and
- start developing its approach to climate-related financial disclosure and consider engaging with the Task Force for Climate-related Financial Disclosures framework and other established initiatives when doing so.
Questions pertaining to an insurer’s approach and activities related to the financial risks from climate change will be integrated into DFS’s examination process starting in 2021.