The Treasury Department is studying the impact of climate on the availability of insurance

The Treasury is increasingly concerned that climate change is making property insurance scarce in disaster-prone areas, and plans to launch the first national assessment of insurers’ financial exposure to climate risk.

The Federal Insurance Administration sent a preliminary email Thursday to insurance regulators in all 50 states asking what data they have that would show insurance coverage, liabilities and losses for each zip code in their state over the past five years.

The data would help the federal agency assess whether insurers are refusing to cover homes and businesses in areas that are vulnerable to intensifying storms and wildfires and other effects of climate change. The office was created after the financial crisis of 2007-2008 to monitor insurance availability and risks in the insurance markets.

President Joe Biden’s May 2021 executive order on climate financial risk directs the Insurance Service to assess the “potential for major disruptions” in the availability of insurance in markets that are vulnerable to climate change. In August, the office solicited public comments on how climate change could undermine the stability of the insurance sector (Climatewire17 November 2021).

The insurance office said in its email to state officials that it plans to analyze the risk insurers face from potentially paying out a growing number of claims in disaster-prone areas. Data from each country would identify the “impact [of climate change] regarding gaps in protection and availability of insurance, particularly in risky markets,” the email, obtained by E&E News, said.

The insurance office’s efforts come as anecdotal evidence suggests insurers are withdrawing from climate-vulnerable markets. In Florida, hundreds of thousands of homeowners and renters have lost coverage over the past three years as insurers faced heavy losses in part due to hurricane-related claims. Residents were forced to buy expensive policies through the state insurer of last resort (ClimatewireJune 22).

California insurers lost $20 billion from wildfires in 2017 and 2018, prompting them to raise rates or drop policies in high-risk areas. State Insurance Commissioner Ricardo Lara imposed a series of moratoriums barring insurers from dropping policies in areas threatened by wildfires.

“Federal insurance coverage is more important now than ever in the context of climate change,” said Amy Bach, executive director of United Policyholders, a California-based consumer advocate. “It is important for the federal government to monitor the health of the property and casualty market because we saw in 2008 how closely linked insurance, mortgages and the economy are.”

The insurance office email does not require states to provide data. It only asks if coverage and exposure data are available in each zip code. State insurance adjusters typically have coverage and exposure information for their entire state, and sometimes for counties that may have dozens or hundreds of zip codes.

The request is intended to determine whether states can provide “certain data if requested at some point in the future,” the insurance office wrote in its email. “We are only trying to determine whether you would be able to provide the data if asked.”

Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, applauded the insurance office’s efforts.

“The climate poses a significant threat to the availability and affordability of insurance,” Rothstein said in an email. “Analyzing the impact of climate change, such as sea-level rise, wildfires, inland flooding on property losses, including business disruption, is important to mitigate this threat.”

Bach said the Federal Insurance Service can learn from states that detailed information about coverage and exposure “probably isn’t as accessible as it should be.”

The insurance office declined to comment for this story.

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