September 26, 2019
ICYMI: SUPERINTENDENT LINDA A. LACEWELL'S OP-ED IN CRAIN'S NEW YORK BUSINESS: PAYING THE PRICE FOR CLIMATE CHANGE
As global leaders gather in New York this week for the 10th anniversary of Climate Week, the urgency to create solutions to Earth’s rising temperatures—and address the monetary and other significant costs of the damage left behind by extreme weather—has never been greater.
We need only read (and weep at) the headlines: devastating hurricanes in the Bahamas, as Puerto Rico continues to recover from Hurricane Maria; record-breaking wildfires in California, and record-high temperatures across Europe.
Closer to home, New Yorkers, including residents of Red Hook, Brooklyn, found themselves wading through flooded streets in July, and Lake Ontario deluged eight counties in upstate New York earlier this year.
The damage left behind by extreme weather is real, and someone has to pay for it.
In 2012, Superstorm Sandy caused nearly $19 billion in insured property losses—excluding flood insurance claims. Recent reports estimate that the cost of extreme weather in the U.S. is likely to result in damages of about $750 billion for this decade alone.
Paying those costs and addressing the threats posed by climate change will require increased partnership between the public and private sectors.
While Washington remains in denial and neglects its duties, New York continues to lead the nation.
When the Trump Administration tore up the Paris Climate Accords, New York, under Gov. Andrew Cuomo’s leadership, formed a coalition with other states to commit to its principles.
The governor recently signed the Climate Leadership and Community Protection Act—perhaps the most ambitious and aggressive greenhouse gas reduction target in the world—with New York aiming for an 85% reduction in emissions and economy-wide carbon neutrality by 2050.
He looks to his father’s three terms as governor to show that climate change is accelerating: During 12 years in office, Gov. Mario Cuomo declared 11 states of emergency due to devastating weather—less than one emergency a year.
But after less than nine years serving as governor, Andrew Cuomo has already declared 23.
If these devastating storms continue to occur with increased frequency and severity in unexpected places with unexpected fury, delivering unexpected impact, insurers will be overexposed to severe losses if they have not taken adequate steps to manage their risks.
This threat would also harm consumers who rely on the insurance they purchase to help protect themselves, their families and their property, since the costs would be passed onto them through increased premiums.
As the regulator for the insurance and banking industries in New York State, the Department of Financial Services takes the threats posed by climate change very seriously, and we expect the companies we regulate to do the same. With $4.7 trillion in insurance-related assets in New York State—including consumers’ property, health, and welfare that insurance is designed to protect—there is simply too much at stake to stand by and do nothing.
Government and the financial services industry must each do their part while working together—or pay the price for failing to do so.
DFS recently became the first state banking regulator to join the Network for Greening the Financial Sector and the Sustainable Insurance Forum to collaborate with our international regulatory counterparts on climate change. DFS also works with the insurance industry on the issue. We require our regulated insurers to have business continuity plans to ensure they can continue serving customers during a disaster, and we provide guidance on how to do so.
The Department also supports the continuing development of a private flood insurance market and encourages insurers to provide discounts on premiums to consumers who add certain protections to their properties to reduce their individual risks.
The industry must take steps internally as well.
Recently, one of the large insurance groups we regulate appointed a Chief Sustainability Officer and published a report with the group’s climate-related financial disclosures. By measuring their exposure to the impacts of climate change, they will be able to take concrete steps to better protect their policyholders.
Other insurers should take similar steps by dedicating resources to help them identify their exposure to climate risks.
Investment strategies will be key as well. Rather than pour money into fossil fuel assets, insurance companies should look to renewable energy. Not only will it help investment returns as we move towards a clean economy, but supporting renewable energy will also lead to fewer emissions, which will in turn lead to less global warming, resulting in fewer floods and fires, and by extension, fewer insurance claims.
The public-private partnership is more critical than ever. We are living in the eye of the hurricane. The storms are all around us, and denial is not an option, we must be prepared.
Linda A. Lacewell is the Superintendent of Financial Services for the State of New York and a member of Gov. Andrew M. Cuomo's cabinet.