RISK:

Sudden revolt by insurance regulators scales back climate rule on industry

A surprise rebellion by a majority of insurance regulators Sunday reversed key elements of a landmark regulation requiring the nation's largest industry to publicly disclose its efforts to address climate change. Companies can now submit their answers confidentially in most states.

The upheaval rolls back the nation's maiden climate rule on corporations, casting environmentalists and investor advocates into confusion weeks before the 12-question survey was supposed to be enacted. The change, passed by a vote of 27-22 among state insurance commissioners, promises to make it more difficult for activists to pressure the sprawling industry to act more aggressively on global warming.

It also underscores the depth of concern that commissioners around the country have with a survey that asks about insurers' actions to reduce their greenhouse gas emissions and safeguard billions in investments from climatic impacts, and about efforts to spark activism among their customers.

A survey with public answers could thrust companies into a public relations battle on climate change, said Scott Richardson, the insurance commissioner of South Carolina, who offered a motion at the final meeting of a five-day conference for regulators that led to the change.

"It was becoming a litmus test of whether you're a green state or not a green state, or a green commissioner or not a green commissioner," he said. "To me, that was very dangerous. If somebody wants to know whether an individual insurance company has environmental issues that they're doing, then why don't you call them up and ask them? You don't need this survey to do it."

The vote came one year after the National Association of Insurance Commissioners (NAIC) unanimously adopted the "climate risk disclosure survey," following more than a year of open meetings and sometimes bitter clashes between industry representatives, advocates and regulators. Compromises were hatched and concessions were given in order to keep the responses public.

Shadow operation is 'unfortunate'

That delicate balance has now been disrupted, some supporters say. And it happened largely behind closed doors as regulators diluted the hard-won survey.

"It's not the ideal process for the NAIC here, in that this was the first time there was a public discussion indicating that people wanted to go to a different model," said Joel Ario, the insurance commissioner of Pennsylvania and chairman of the NAIC task force that developed the survey. "I think it's unfortunate that there wasn't more public discussion about that."

The new model asks the same questions. But it allows states to keep insurers' responses private, a departure from the original measure that promised to post all answers on a central database. It also suggests that that survey could now be a voluntary exercise for companies, rather than mandatory. Another change involves new wording making it clear that regulators are not expressing an opinion about the "existence or absence of climate change."

Ario and other survey supporters were expecting Richardson of South Carolina to offer his motion to scale back the survey, according to one source. But they were stunned by the strong support it received.

"To me personally it was very disappointing," said Mike Kreidler, the insurance commissioner of Washington state and vice chairman of the task force that developed the survey.

"The dynamics started to change after Copenhagen," he added, saying that political unrest among regulators grew as the controversy around national climate legislation and the controversy over hacked e-mails from climate scientists expanded. "Probably more so, I think, was the conservative backlash that's been somewhat evidenced in the tea bag party movement, somewhat being in denial that there's any problem with climate."

'Not our job'

It was that certainty with which some regulators spoke of inevitable impacts from climate change that grated on some industry officials and regulators from states with conservative governors and a heavy reliance on fossil fuels. The survey, they say, was a tool pursued by groups like Ceres, an environmentally minded group of institutional investors pressing for more action by insurers.

Mandatory disclosure would essentially force insurers to get more involved, or face a public relations nightmare, opponents say. The rebellion among regulators appears to underscore the hesitancy of some states to play a part in environmental advocacy.

"We don't do stockholder reports. That's not our job," said Richardson. "That ain't our job, either, to be environmental or not environmental."

Yet climate change is clearly within the jurisdiction of regulators, supporters say, pointing to the solvency issues that climatic impacts could have on a company's investment return, exposure to loss and ability to bend with national legislation.

The changes this weekend aren't all bad, says Ario. Allowing insurers to answer privately could increase participation by states that otherwise would not have issued the survey.

"I think this may well prove to get us more responses to the survey," he added.

It's unclear how many states will distribute the document. It's also unknown how many states will break away from the revised NAIC survey format and post their answers publicly. Commissioners can be as aggressive, or passive, as they wish to be on the issue because insurance is regulated at the state level.

Move could spur tougher action by big states

That could cut both ways. The survey adopted a year ago was significantly diluted to attract the support of wary trade groups and regulators. Now those concessions have lost their value to supporters of disclosure, because opponents have abandoned the process. So a heavier hand could be used to get the information.

One option could involve a smaller group of states where many insurers do business. Those states could require a large section of the country's industry to comply with a survey that might be more aggressive than the measure adopted by the NAIC last year.

That threat is already being tossed around.

"The current proposal is not something that will generate substantive useful information, so we certainly will be seeking ways to get the information we think is needed," said Andrew Logan, who heads the insurance section of Ceres and who helped develop the original survey. "I think it's natural for some of the states to want to expand the scope of the survey. They also might choose, frankly, to alter the nature of the questions, as well."

That's not what the American Insurance Association wants to hear. The industry group supported the disclosure compromises reached in the first survey. With that plan unraveled, it does not want to see independent states break from the passive replacement offered by Richardson and others to develop tougher standards.

"We would not want to see whatever happens at the NAIC turn the clock back on the hard work that was done by regulators, environmental activists and ourselves to come up with questions that are both meaningful and reasonable," said David Snyder, a vice president of the AIA.

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