SACRAMENTO, Calif. Aug. 27, 2018 – Insurance Commissioner Dave Jones commended the publication of California’s Fourth Climate Change Assessment (Fourth Assessment), which includes a large body of research on climate impacts and how to respond to them. The California Department of Insurance was a member of the interagency Task Force which led the Fourth Assessment. The Fourth Assessment supports California’s climate policies and actions and improves the state’s and public’s understanding of the impacts of climate change in California and actions to help the state prepare for those impacts.
“Climate change poses a significant threat to all of us. The Fourth Assessment has brought together key leaders, experts, agencies, and stakeholders throughout the state to understand the evolving impacts of climate change and potential actions that can protect Californians,” said Insurance Commissioner Dave Jones. “We were pleased to participate with other departments in the Fourth Assessment effort and I support the state’s efforts to reduce climate change causing greenhouse gas emissions and to improve our resiliency in the face of climate change.”
As he leads the Department of Insurance’s efforts to help Californians recover from wildfires, which in 2017 caused $12.6 billion in insured losses and took over 60 lives, Commissioner Jones has noted that climate experts have found that climate change is contributing to catastrophic weather-related events, including the increase in frequency, severity and unpredictability of wildfires. By 2100, if greenhouse gas emissions continue to rise, the Fourth Assessment found that the frequency of extreme wildfires burning over approximately 25,000 acres would increase by nearly 50 percent, and that average area burned statewide would increase by 77 percent by the end of the century. In the areas that have the highest fire risk, wildfire insurance is estimated to see costs rise by 18 percent by 2055 and property insured would decrease.
An extensive scientific review supported by the Fourth Assessment found that reducing tree density and restoring beneficial fire can improve long-term resilience to California’s forests. Simulations of large-scale fuels treatments in Sierra Nevada forests substantially reduce increases in burned area. Improving forest health by removing fuels can have important impacts to reduce rising wildfire insurance costs. Increasing understanding of megafires remains a critical research need for California.
As a national leader on climate change and climate risk, and as the regulator of the largest insurance market in the nation, Commissioner Jones has led a multistate effort since 2012 to require insurers to respond to the Climate Risk Survey adopted by the National Association of Insurance Commissioners (NAIC) in 2009. In early 2016, Jones launched his Climate Risk Carbon Initiative because of the potential for investments in coal, oil, gas and utilities relying substantially on burning carbon, to become stranded assets on the books of insurers with little or no value as governments, private companies and markets, in an effort to address climate change, may slowly or dramatically reduce the demand for carbon-based fuels and their value drops. Jones is the first financial regulator to ask that a financial sector-in this case insurance companies-divest from thermal coal and to require that they publicly disclose their holdings in oil, gas, coal and utilities, due to potential climate-related risks.
In May, Commissioner Jones became the first U.S. financial regulator to conduct a climate-related financial risk stress test and analysis of insurance companies’ investments in fossil-fuels. The department engaged 2° Investing Initiative, an established partner of European financial regulators, to conduct this analysis for insurers in California’s insurance market with over $100 million in annual premiums. It is arguably the most comprehensive financial stress test analysis ever conducted for the insurance sector. The results of the scenario analysis are consistent with Commissioner Jones’ Climate Risk Carbon Initiative determination that thermal coal as an investment faces climate-related financial risks, despite any short-term fluctuations in market price and policy signals.
In June 2017, 12 state attorneys general and one governor threatened to sue Commissioner Jones for calling on insurance companies to evaluate and address potential climate-related risks to their investment portfolio, to ensure they are investing in assets that retain value and are subsequently available to pay future claims. Despite these threats, Commissioner Jones is continuing the Climate Risk Carbon Initiative, the most recent component of which is the climate-related financial risk stress testing of insurers’ investment portfolios, to make sure insurers are addressing climate change related risks and to protect California consumers. In April 2018, a group of financial supervisors and central banks including the central banks of England, France, Germany, the Netherlands, Sweden, Singapore, China and Mexico announced their cooperation to conduct similar climate stress testing on insurance companies and other regulated financial institutions.
- California’s Fourth Climate Change Assessment (Fourth Assessment)
- Insurance Commissioner Dave Jones’ Climate Risk Carbon Initiative website