Finance Watch responded to the Federal Insurance Office Information Request on the Insurance Sector and Climate-Related Financial Risks to highlight the urgent need to address capital requirements for fossil fuel assets in US prudential rules for insurers.
Key points raised in the response include:
- Given the scale of climate-related financial risks and the fact that they present a systemic threat a harmonised regulatory approach at federal level is needed. Divergent approaches at State level could undermine action in this area and reduce the effectiveness of any measures to address these risks.
- In order to manage enforcement of any regulatory action taken the FIO would need to ensure regular, structured dialogue with State insurance commissioners and the NAIC. These exchanges allow commissioners and the FIO to collectively increase their knowledge of the best practices and pitfalls that can arise in the supervisory process. This can then ensure that necessary adjustments to regulatory approaches can be made to ensure enforcement.
- Climate-related financial risks are systemic in nature and therefore need a global approach, both in terms of prudential regulation and disclosure. If this does not happen these risks may be shifted rather than dealt with, leaving the global financial system, as a whole, vulnerable.