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Health plans need to prepare for climate change threats

A new regulation will require health insurers to think about climate change and how it could affect their companies, investments, and members.

Although property insurance companies have been preparing for possible climate change, health insurers have not been focused on the issue. Property insurance has tackled the issue of climate change because of possible catastrophic events, such as rising seas wiping out oceanfront property.

On the surface, climate change may not appear to have as much of a direct effect on health insurance companies, but health insurers face their own climate change issues.

In hopes of getting health insurance companies focused on the issue, the National Association of Insurance Commissioners (NAIC) recently adopted a regulation that requires insurance companies to complete an annual eight-question survey about their financial risks associated with climate change and what actions they are taking to respond to those risks. The survey will assess insurers’ risk assessment and management efforts and allow regulators to follow up with questions if necessary, according to the NAIC.

The policy will require all insurance companies with annual premiums of $500 million or more to complete the Insurer Climate Risk Disclosure Survey and submit them to the state insurance commissioner where the company is domesticated. The first reporting deadline is May 1, 2010.

The survey includes questions about what insurers are doing to reduce greenhouse gas emissions, whether they have a climate change statement of policy, whether they consider climate change as they choose investments, what they have done to encourage policyholders to reduce losses caused by climate-influenced events, how they are engaging their members on the topic of climate change, and how climate change could affect the insurer’s investment portfolio. (See Figure 12 below for a list of questions and where there is overlap with the Carbon Disclosure Project.)

“Climate change will have huge impacts on the insurance industry, and we need better information on how insurers are responding to the challenge,” Pennsylvania Insurance Commissioner Joel Ario, who chairs the NAIC Climate Change and Global Warming Task Force, said in a recent announcement about the new requirement. The task force released a white paper, The Potential Impact of Climate Change on Insurance Regulation, in 2008. Insurance commissioners point to several potential issues for health insurers:

  • More airborne allergens, rising temperatures, greater humidity, wildfires, and dust and particulate pollution may “considerably exacerbate” upper respiratory disease and cardiovascular disease
  • Compounding current health issues, such as asthma
  • People exposed to hurricanes and floods
  • Heat wave–related health issues

“At a very basic level, human health will be impacted by climate change in ways that are not yet fully understood nor anticipated,” the NAIC wrote in its white paper.

Speaking in front of the U.S. Senate Committee on Commerce, Science, and Transportation in March, Wisconsin Insurance Commissioner Sean Dilweg said that regulations must examine how climate change will “impact the investments hold and establish regulatory standards for the investment practices of insurers.” This is critical because insurance companies and consumers “would be among the first to feel the effects of climate change, so the evolution of climate science is of keen interest to us as regulators and is a key tool for the companies to regulate,” said Dilweg.

“Insurance regulators must assess and, to the extent possible, mitigate the impact that climate change will have on insurance and encourage insurers to provide incentives for policyholders to engage in practices that will ultimately strive to limit losses,” he added.

Michael Gresty, president of Kinetix Business Ecology, a New York City–based sustainability consultancy, says health insurers have not seen climate change as an issue that affects them. “I would argue from anecdotal information that they are all behind the curve on this. None of them is really ready to respond,” Gresty says about health plans.

With its new regulation, the NAIC is forcing insurers to take action, he says.

“[Health insurers] don’t want to look any less aware or smart than they appear and they certainly want to do the due diligence on thinking through what these implications are as much as they possibly can. I think it’s a call to action,” says Gresty.

On the surface, the eight-question survey may seem simple enough, but Gresty suggests health insurers could face problems finding out more about their investments. For example, a health insurer probably won’t have a problem asking a major manufacturer about a climate risk plan. However, getting a “meaningful response” from a municipality could take years, he says.

Gresty says property and casualty insurers have been ahead of health insurers on the issue, but climate change could strain the healthcare system. It’s not that no one has been speaking out about health insurers and climate change. Six years ago, Paul R. Epstein, MD, MPH, associate director of the Center for Health and the Global Environment at Harvard Medical School, spoke before Congress about how global warming could affect health insurers.

“All of this is going to make a huge impact on the ability of healthcare systems to provide services to affected populations. They are going to be overwhelmed in some cases by pandemics that they are not able to manage or control,” says Gresty.

In addition to completing the NAIC survey, Gresty says health plans should do the following immediately:

  • Revise catastrophic models of future events and their effect on populations, such as disease patterns and potential disease outbreaks
  • Review their financial profile risk model to see what investments in companies may be affected by climate change, such as businesses that face carbon taxes
  • Create a disaster recovery plan for their headquarters and branch offices, particularly if the offices are based in a possible at-risk area

The NAIC says the survey is the first of its kind, and the regulators hope it will serve as a model for financial institutions to discover how climate change is affecting industries.