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December 4, 2023

Policymakers Need to Increase Data Collection to Address the Growing Impact of Climate Change on Insurance

Better Markets joining leading progressive advocacy groups, including Public Citizen, in a letter supporting the Federal Insurance Office’s (FIO) Climate-Related Financial Risk Data Collection efforts and urging the Office of Management and Budget (OMB) to approve the collections.

Why It Matters. As the climate crisis rages on, tomorrow’s financial crisis is lurking in the shadows. This was made clear this summer due to a growing number of climate-driven insurance crises. For example, numerous insurance companies, including AIG, State Farm, Farmers, and others, either limited coverage or completely withdrew from areas such as California and Florida, exposing individuals and businesses to more expensive, less robust coverage or no coverage at all. Given that those now underinsured or uninsured properties are collateral for many of the assets on banks’ balance sheets, this is a banking crisis in the making that will inevitably hurt Main Street consumers and small businesses as well as the banks that lend to them.

What We Said. Better Markets highlighted these key issues in August in a report examining the financial vulnerabilities concealed beneath the climate crisis. More frequent and costly climate disasters are wreaking havoc on the insurance industry and resulting in a proliferation of underinsured if not uninsured properties and businesses.  While the effects of climate events are tragic for homeowners and problematic for insurance companies, they are a coming crisis for banks and the financial system. The banking regulators took important steps to begin addressing the problem of climate-related financial risk this fall, but they and the Financial Stability Oversight Council (“FSOC”) must do more to address this looming crisis. The data that the FIO’s collection would provide is an important step in understanding the risks and enable informed decisions on how best to mitigate them to protect all Americans

Bottom Line.  A crucial first step to addressing this growing problem is ensuring there is comprehensive data that provides adequate insight into the extent of the current issues. That’s why Better Markets welcomes the FIO’s effort to finalize their proposed data collection efforts but also calls on them to make their data accessible to independent researchers for further analysis.

You can find the full letter here.

 

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