The proposed guidance builds on the DFS’ September 22, 2020, Circular Letter outlining its expectations that all New York-regulated insurers start integrating the consideration of financial risks from climate change into their governance frameworks, risk management processes, business and investment strategies, and public disclosures. Each insurer is expected to proactively address, analyze, and assess the significance of climate-related financial risks to its business, and take a proportionate approach to managing those risks that reflect its exposure to those risks, including the nature, scale, geographic distribution, and complexity of its business.
Specifically, the proposed guidance states that an insurer should do the following:
- Integrate the consideration of climate risks into its governance structure. The insurer’s board should understand and be responsible for managing climate risks, which should be reflected in the company’s risk appetite and organizational structure.
- When making strategic business decisions, consider the current and forward-looking impact of climate-related factors on its business environment in the short, medium, and long-term.
- Incorporate climate risks into the insurer’s existing financial risk management, including embedding climate risks in its risk management framework and analyzing the impact of climate risks on existing risk factors. Climate risks should be considered in the company’s own risk and solvency assessment (ORSA).
- Use scenario analysis to inform business strategies, risk assessment, and identification. Scenarios should consider physical and transition risk, multiple carbon emissions and temperature pathways, and short, medium, and long-term horizons.
- Disclose its climate risks, and consider the Task Force on Climate-related Financial Disclosures and other similar initiatives when developing its disclosure approaches.
The DFS has stated that it is its intention to monitor compliance with these expectations as part of its supervisory activities. In the meantime, the DFS continues to develop its supervisory approach to managing and disclosing climate risks and will develop a timeframe by which insurers should have fully embedded their approaches to managing climate risks into their governance structures, risk management frameworks and processes, business strategies, metrics and targets, and disclosure methods. Accordingly, although a final guidance has not yet been issued, and no specific deadline for compliance has yet been set, insurers are well-advised to begin developing and implementing compliant climate risk management protocols.
Public comments on the proposed guidance are due on or before June 23, 2021.
 Since 2013 the DFS has required all insurers reporting over $100 million in New York premium to participate in the Insurer Climate Risk Disclosure Survey administered by the California Department of Insurance and currently required by six states.