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On March 19-20, 2015, the UNC School of Law Center for Law, Environment, Adaptation and Resources (CLEAR), the Georgetown Climate Center, the Emmett Institute on Climate Change and the Environment, and the Cooperative Institute for Climate and Satellites - North Carolina (CICS-NC), which is largely supported through a grant from NOAA's National Climatic Data Center (NCDC), hosted CLEAR's third Workshop on Private Sector Climate Change Adaptation and CICS-NC's third Executive Forum on Business and Climate in Chapel Hill, NC. The workshop and forum provided a platform for discussion across academia, government, and the private sector built around the topic of climate risk information disclosure, specifically concerning the insurance industry.

Objectives/Goals

  • Discuss the desirability of government requirements related to insurance company disclosure of climate change risk information. This includes analyzing whether such climate risk disclosure requirements will assist insurers in analyzing their own financial exposure to climate risk and whether this, in turn, will prompt insurance companies to more accurately price products to the private sector.
  • Discuss the best way to require this information to accurately price climate risk and encourage good adaptation in the property sector.

Background

The private sector has a role in climate change adaptation and building resiliency. The need to protect investments will push the private sector to adapt. This normal market response, however, requires both that the private sector have access to the information necessary to understand the risks from climate change and the need for resiliency, and that the government does not discourage such adaptation through maladaptive policies. In the United States, private businesses do not have accurate understanding of climate change, such as risk from sea level rise or changing weather pattern

CLEAR hosted a conference on private sector adaptation and the role of policy and law in 2012, which identified several areas of concern in private sector adaptation. In 2013, the Cooperative Institute for Climate and Satellites – North Carolina (CICS-NC) held a workshop with representatives of the private sector including the property and insurance arenas. The goal was to solicit information about how climate risk information could be transmitted to them from government agencies such as NOAA and its data centers including the National Climate Data Center (NCDC), and from organizations like CICS-NC.

Both of these conferences identified insurance as an area in which climate change risk information is necessary both for the insurance industry itself and for the insurance industry to encourage climate change adaptation by accurately pricing climate risks for businesses which utilize insurance. The insurance industry needs accurate information to create actuarially correct products, and the property sector needs information both directly and in insurance signals to make appropriate decisions.

Thus, government can affect adaptation outside of direct action by how much information disclosure for climate change risks it requires in certain arenas. CLEAR has prepared a briefing paper (PDF) on the disclosure requirements of climate change risks in different contexts.

Such disclosure requirements can have a particular effect on property transactions as information makes its way into actuarially correctly pricing of the true cost of maintaining property in certain locations.

Industry and business may prefer to not have such information in the hopes that a property product may have a higher value. One of the ways that property’s’ value may be miscalculated depends on insurance pricing. Nevertheless, there is a societal presumption that better information leads to more efficient pricing and resource allocation and that governmental policies should support such disclosure.

Flood insurance policies may provide incorrect risk signals due to government subsidies and/or regulation. Beyond altering such maladaptive policies, can and should the government require climate risk information be disclosed, particularly in the insurance industry, so that insurers can use this information correctly to assist in efficiently pricing insurance and giving efficient signals to other private sector actors to increase resiliency and reduce risk in the property arena? Is this an important policy for climate change adaptation?

UNC School of Law | Van Hecke-Wettach Hall | 160 Ridge Road, CB #3380 | Chapel Hill, NC 27599-3380 | 919.962.5106


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