New York’s Financial Services Department (DFS) has published “detailed” draft guidance on how it expects state insurers to manage financial risks posed by climate change, in what is claimed to be a first for a US financial regulator.
Building on a circular letter issued by the DFS in September, the draft guidance states that insurers should:
- Integrate the consideration of climate risks into its governance structure.
- Consider the current and forward looking impact of climate-related factors on its business environment in the short-, medium-, and long-term.
- Incorporate climate risks into financial risk management frameworks
- Use scenario analysis to inform business strategies and risk assessment
- Disclose climate risks and consider the Task force on Climate-related Financial Disclosures and other initiatives when developing disclosure approaches.
DFS adds in the draft that it “intends to monitor compliance with these expectations as part of its supervisory activities”. Linked to these efforts, the state regulator revealed that it will decide a “timeframe” for insurers to embed management of climate risks.
The draft guidance was described as “a blueprint for insurers to manage the complex financial risks of climate change,” by DFS Superintendent Linda Lacewell, yesterday. “We look forward to receiving input from the industry, experts and others to help shape our final guidance. The imperative of climate change is now,” she added.
The formation of the draft was “informed” by dialogue with international regulators and networks, including the Bank of England, the Network for Greening the Financial System, the European Central Bank and European Insurance and Occupational Pensions Authority, the DFS said. Such collaborations will continue, the state regulator said, in order “to reduce the compliance burden on insurers”.
The consultation on the new guidance will run until June and the DFS will host a webinar to provide an overview of it on 8 April 2021.