ALBANY, N.Y. — The New York State Department of Financial Services (DFS) on Nov. 15 issued final guidance to state–regulated domestic insurers detailing DFS’s expectations on their management of the financial risks from climate change. After issuing a proposed version of the guidance in March, DFS said it received comments from a broad range of […]
ALBANY, N.Y. — The New York State Department of Financial Services (DFS) on Nov. 15 issued final guidance to state–regulated domestic insurers detailing DFS’s expectations on their management of the financial risks from climate change.
After issuing a proposed version of the guidance in March, DFS said it received comments from a broad range of stakeholders, including insurers, trade groups, consumer advocates, climate experts, rating agencies, and other financial regulators.
The final guidance reflects DFS’s consideration of all comments received.
DFS’s dialogue with the insurance industry and international regulators helped shape the guidance. It is based on the New York Insurance Law, National Association of Insurance Commissioners manuals, and the work of international regulators and networks. Building on an earlier circular letter on climate change and financial risks, the guidance sets out DFS’s expectations that all New York insurers start “integrating the consideration” of the financial risks from climate change into their governance frameworks, business strategies, risk management processes and scenario analysis, and developing their approach to climate-related financial disclosure.
Guidance details
As described in the guidance, DFS expects insurers to take a “strategic approach” to managing climate risks that considers both current and forward-looking risks and identifies actions required to manage those risks “in a manner proportionate to the nature, scale, and complexity” of insurers’ businesses.
Specifically, an insurer should integrate the consideration of climate risks into its governance structure at the group or insurer-entity level.
In addition, when making business decisions, consider the current and forward-looking impact of climate-related factors on its business “using time horizons that are appropriately tailored” to the insurer, its activities, and the decisions being made.
An insurer should also incorporate climate risks into its existing financial-risk management, including by embedding climate risks in its risk-management framework and analyzing the impact of climate risks on existing risk factors.
In addition, an insurer should use scenario analysis to inform business strategies and risk assessment and identification.
It should also disclose its climate risks and communicate with the Task Force on Climate-related Financial Disclosures and other initiatives when developing its disclosure approaches, DFS said.
The department expects the guidance to serve as a basis for supervisory dialogue and to help insurers familiarize themselves with climate risks and develop their capacity and processes for managing them in accordance with the timelines specified in the guidance.
DFS also intends to monitor insurers’ progress in implementing the expectations in the guidance, which requires insurers to implement the expectations relating to board governance, and to have specific plans in place to implement the expectations relating to organizational structure, by Aug. 15, 2022.
DFS plans to issue further guidance on the timing for implementation of the more-complex expectations outlined in the guidance. A copy of the final guidance can be found on the DFS website, the department said.