California insurance commissioner on climate standards: 'Transparency is critical'
CA Insurance Commissioner Ricardo Lara joins Yahoo Finance Live to discuss California’s push to make insurance companies more accountable in the fight against climate change through their investments.
Video Transcript
AKIKO FUJITA: Well, California is pushing for more transparency in where insurance companies are investing. The state is now making public the investments that insurance companies have, both in fossil fuel companies and in green bonds and clean energy investments. Joining us to discuss, we've got California Insurance Commissioner Ricardo Lara joining us today. And commissioner, it's good to have you back on. This is such an important topic, especially when you consider that natural disasters, losses from that, topped $145 billion in the US last year. Talk to me how you define these investments.
RICARDO LARA: You know, thank you, Akiko. It's great to be with you. And you're right. For the first time, we are tracking insurance companies' investments both in fossil fuels and in green investments. And our report really gives us a roadmap for the future, not just for reducing our dependence on fossil fuels, but for increasing investments in clean energy. And because insurance companies invest a major part of our premiums in order to pay for future claims, transparency about these investments is critical.
AKIKO FUJITA: And obviously, to your point, insurance companies are exposed on both sides through their investments, but also through their underwriting. And this comes at a time when we're increasingly hearing from homeowners in California that they're not getting covered for insurance because of the fire risk that exists. How does that connect directly to what you're exposing today through this website? Why is it important for those homeowners to understand where those investments are being made?
RICARDO LARA: Absolutely. We know that transparency is critical to giving back power to insurance consumers over the premiums that they pay. Consumers can actually see what progress companies are making on climate action, as we continue to update this data in the future. And as a regulator, I'm focused on climate risk, and now I have this analysis of these investments related to climate change. And the study also really complements our other climate work at the Department of Insurance. And so, again, this transparency helps consumers understand what insurance companies are investing in and how fast they're removing their investments from fossil fuels. And that's critical information for all of us to have and to make public.
BRIAN CHEUNG: Ricardo, it's Brian Cheung here. In many cases, these insurance companies stretch across multiple state lines. So you're doing this in California. Have you engaged with other states as well, or even at a federal level, to try to increase the transparency further in what you're trying to do here?
RICARDO LARA: Absolutely. Just a few weeks ago, I was proud to lead an effort by insurance commissioners nationally to endorse new standards for disclosure of climate risk. These new standards are currently used by other countries. And the Biden administration is actually pushing them for financial sector as a whole. And this is massive progress. Just three years ago, we had no companies using the TCFD online standards. By this year, we will have reports from nearly 400 insurance companies and groups, which is nearly around 80% of the US market. So it's a major, major accomplishment for us nationally at the National Association of Insurance Commissioners.
AKIKO FUJITA: Is that binding across states? I know you work very closely with the state of Florida for that particular agreement, but as I understand it, not all states are on board, correct?
RICARDO LARA: Yeah, you're right. This is a voluntary disclosure survey, but we now have, for the first time ever, double digits in terms of, I think it was around 17 states, bipartisan states, that are now requiring the survey, which is 80% of the market. So we're moving in that direction. And I'm proud of the fact that, again, we're demonstrating that by collaboration, bipartisanship. We're actually getting this done at the state level, overarching again with 80% of the market participating. So it's a big win for us nationally.
AKIKO FUJITA: I wonder if you can sort of bottom line this for us and what this all means when we're talking about disclosures from the standpoint of the viability of insurance companies. You and I have had conversations many times before about how insurance companies are increasingly struggling to pay out the claims, which is why they're also not covering certain homeowners, even in the case of those who say, look, we've done the work. There's not necessarily a fire risk. And that seems to point to the fact that insurance companies are increasingly having to take on this risk, and they are struggling under the weight of that.
RICARDO LARA: Absolutely, Akiko. Look, there's two things that are happening, especially here in California. We're moving regulation that are going to, again, give people more transparency in terms of what their fire risks are, and also mandate that insurance companies actually give people incentives and discounts in their policy so that we can continue to do the hardening, the home hardening that needs to happen both at the individual parcel level, the surrounding of the unit of the home, and also at the community wide level, which, for the first time now, we've created mitigation standards for how do we bring down the risk for the entire community.
And we know what we're doing is working because already in California, from our findings from last year, there's been a 10% decrease in non-renewals around California. So we know that insurance companies are coming back, providing those policies. Obviously, it's not fast enough, but we all have to work together to bring down that risk and at the community wide individual level as well, so that we can keep insurance companies writing. And like I said before, we're seeing that 10% drop already in non-renewals. So we've got to just continue to provide incentives for Californians to continue to do the right thing, which is harden their home, provide that defensible space, and continue to work as a community to bring that risk down.
BRIAN CHEUNG: All right, California Insurance Commissioner Ricardo Lara, thank you so much for joining us here on Yahoo Finance this morning. We appreciate it.
