Minnesota has joined four other states in requiring its insurance companies to discuss how extensively they've prepared for climate change.
About 70 companies have until Aug. 31 to respond to an eight-question survey. The questionnaire, developed by the National Association of Insurance Commissioners (NAIC), focuses on the assessment of risk associated with climate change. However, it also seeks information on whether insurance companies are working to reduce their own greenhouse gas emissions, have altered their investment strategies in response to climate change, or have encouraged policyholders to reduce losses caused by "climate change-influenced events."
State Commerce Commissioner Mike Rothman said Minnesota joined California, Connecticut, New York and Washington in the survey in order to help develop a broader base of information about possible disaster coverage. While the other states face risks of coastal storms that Minnesota does not, Rothman said Minnesota firms are vulnerable to tornadoes, severe storms and river floods, which some climate models suggest are increasing with a warming climate.
"My perception is that we've seen some frequency changes with those events," Rothman said. "We want to make sure companies and policyholders have the best protection possible."
Minnesota's first billion-dollar disaster year was 1998, the year of devastating tornadoes in St. Peter and Comfrey. The $1.5 billion in losses were greater than those for the previous 40 years combined, said Mark Kulda, spokesman for the Insurance Federation of Minnesota. In three of the past five years, Minnesota's insurance payouts for weather disasters were among the top three in the nation, he said. Since 1998, the average annual premium for Minnesota homeowners' insurance has jumped from $368 to $960.
Identifying, pricing the risk
Unlike many traditional businesses, some insurance companies, particularly European "reinsurance" companies that insure insurance companies themselves, have been outspoken in putting a price tag on climate change by connecting disasters with it.
The president of the Reinsurance Association of America recently told a Senate committee that the insurance industry is "at great financial peril" if it doesn't understand climate change science or the potential ramifications of a warming atmosphere.
The NAIC developed its survey in 2009, noting what it viewed as a clear link between climate change and the viability of insurance companies, as well as its effect on premiums. Earlier this year, Ceres, a Boston-based organization that advocates environmental sustainability in business and helped the NAIC develop the survey, analyzed the 2012 survey results from California, New York and Washington and determined that only 23 of 184 insurance companies had comprehensive plans to accommodate the risks of climate change.
Ann Avery, spokeswoman for State Farm Insurance, the largest insurer of homes and autos in Minnesota, said in an e-mail that State Farm is still preparing its response to the survey. In general, she indicated, the company continues to invest in weather modeling techniques to better judge risk from both climate change and natural weather variability, while also working on strategies for more resilient buildings.
At least one Minnesota insurer said climate change and its effects are not clearly enough understood to prompt higher insurance premiums.
Stuart Henderson, CEO of Western National Insurance Co., which writes $40 million worth of homeowners insurance in Minnesota, said his company is regularly assessing its exposure to all risks, and will adjust to climate change if necessary.
He also criticized the NAIC survey for questions that he believes go beyond liability and advocate strategies to blunt climate change, adding that he believes climate trends are uncertain.
"What are we doing about emissions? We don't have emissions," he said of his company.
It's unclear when Minnesota's survey results will be compiled. Meanwhile, several years of survey results from companies in other states are available at www.startribune.com/a2418.