Climate and Insurance.org | takefive with Robert Detlefsen

Robert Detlefsen is Vice President of Public Policy at the National Association of Mutual Insurance Companies (NAMIC). In this role, Detlefsen conducts public policy research and analysis, and coordinates the development of NAMIC’s issue agenda and advocacy campaigns.

Previously, Detlefsen was a vice president at the public affairs firm of Powell Tate in Washington, DC, where he provided strategic communication counsel to clients involved in high stakes, high profile litigation. Before that, Detlefsen served as Director of Insurance Reform at Citizens for a Sound Economy, and as Senior Research Fellow in Insurance Studies at the Competitive Enterprise Institute.

Detlefsen’s analyses and commentaries have appeared in specialized insurance publications such as the Journal of Insurance Regulation, the Risk Management and Insurance Review, National Underwriter, and Best’s Review.

Detlefsen holds a Ph.D. in political science from the University of California, Berkeley, and a B.A. in political science from the University of Massachusetts, Amherst. He has served on the faculties of several colleges and universities, teaching courses in American government, constitutional law, and political theory.

Takefive:
Dr. Detlefsen, on two separate occasions in the past year you have testified before the NAIC Climate Change and Global Warming (EX) Task Force. Can you briefly summarize the testimony you gave before the Task Force?

Robert Detlefsen:
On the first occasion, I tried to remind the Task Force members of the role that regulation sometimes plays in preventing insurers from helping society manage climate-related risk. I noted that attempts to make property insurance “more affordable”—through rate suppression, underwriting restrictions, coverage mandates, and taxpayer-subsidized government insurance schemes—create perverse incentives that lead to increased population growth and wealth concentration in precisely those areas most vulnerable to climate change-induced extreme weather events. As an example, I noted that Florida’s population had increased by roughly 25 percent since Hurricane Andrew and is expected to rise by another 20 percent by 2025, despite predictions of more severe storms that many climate scientists link to global warming.

On the second occasion, I responded to a proposal submitted to the Task Force by three organizations—Ceres, Environmental Defense, and the Center for Economic Justice—that would impose climate change-related disclosure requirements on insurers.

Takefive:
As you know, Ceres has presented the NAIC with a detailed explanation of why they believe insurers should fill out climate-change interrogatories (see Andrew Logan takefive interview). What is your reaction to their proposal?

Robert Detlefsen:
I think Ceres’s explanation is disingenuous. In your interview with Mr. Logan, he begins by declaring that, according to a survey of SEC filings, “the insurance sector has the worst record on climate disclosure of any industrial sector in the United States.” Surely Mr. Logan knows that insurance is part of the financial sector rather than the industrial sector of the economy. He then contrasts the insurance company disclosure rate with that of “the electric utility sector” and “the oil sector.” Electricity and oil companies, of course, are part of the energy sector. It stands to reason that energy companies would have higher SEC climate change disclosure rates than insurance companies, since they obviously have more relevant information to disclose.

Mr. Logan further opines that regulators need information “about the types of financial exposure insurers face from climate change” in order to monitor their solvency. But regulators already have an abundance of information regarding insurers’ exposure to natural catastrophe risk, which amounts to the same thing. In evaluating company solvency, insurers and regulators correctly focus on hazard exposure, regardless of the source.

Mr. Logan also says that “consumers and investors require information about insurers’ understanding of climate change impacts” in order to make informed purchasing and investment decisions. Mr. Logan should let actual consumers and actual investors be the judge of whether they “require” this type of information. If they do, the market will punish insurers who fail to provide it voluntarily. Finally, Mr. Logan says that “mandatory disclosure” will lead insurers “to take steps to address the problems climate change poses.” This is a dead giveaway that the real purpose of the Ceres proposal is to force insurers to implement the Ceres climate change agenda.

The proposal itself would force insurers to answer, on an annual basis, detailed interrogatories designed to probe their companies’ vigilance in pursuing an anti-global warming agenda. The proposed interrogatories are highly tendentious; each question postulates an implied “correct” response. I told the Task Force members that mandatory disclosures of this kind are simply a thinly-veiled attempt to coerce companies into adhering to a particular agenda for dealing with climate change. It’s a tactic Ceres has applied—with limited success—to other industries and regulatory bodies. Reasonable people in the scientific and public policy communities can and do disagree with Ceres about the precise relationship between climate change and catastrophe risk, and about what measures should be taken to address the problem.

Takefive:
As this interview is being conducted, the NAIC is getting ready to release for public comment its draft white paper on the implications of climate change on various lines of insurance. (See interview with Commissioner Mike Kreidler and Director L. Tim Wagner). What is your reaction to what the regulators have said up to this point?

Robert Detlefsen:
On the whole, I thought their remarks were fairly noncommittal, which is appropriate at this point. I was encouraged by Commissioner Kreidler’s suggestion that property insurance rates should reflect the extent to which insured properties are hurricane and earthquake resistant. I hope he realizes that the scenario he envisions presupposes a market-based pricing system that is free of regulatory rate suppression. I was somewhat troubled by his suggestion that regulators have a duty to “encourage insurers to invest in equities that are both green and profitable.” Because of solvency concerns, property/casualty insurers are actually quite constrained with respect to the type of equities in which they can invest. They tend to favor low-risk asset classes in which their holdings can be easily liquidated—such as municipal bonds. In 2005, for example, property/casualty insurers held municipal bonds worth more than $14 billion in Commissioner Kreidler’s state of Washington. Roughly one third of these bonds were dedicated to utility construction. Should insurers be encouraged to disinvest in public utility projects in Washington State if someone decides that they aren’t green enough?

Takefive:
Dr. Evan Mills, a staff scientist at the Lawrence Berkeley National Laboratory, has proposed 12 ways for insurance regulators to become engaged in the climate change debate. (See takefive interview with Dr. Mills). Do you agree with any of the Mills proposals and why?

Robert Detlefsen:
I think Dr. Mills is right to exhort the NAIC to “stay current on the science,” which should entail a wariness about the potential manipulation of scientific evidence to serve political ends.

I was somewhat bemused by his recommendation that the NAIC “require actuarial pricing of risks”—as if this is something that regulators must force insurers to do. In reality, insurers would love to price coverage based on risk if only regulators would let them. Dr. Mills undercuts his call for risk-based pricing by urging the NAIC to “ensure that underwriting decisions are based on an intention of long-term market participation.” Is he suggesting that insurers should be forced to continue selling their product even if the level of risk increases over time? If so, wouldn’t this requirement create disincentives for property owners and policymakers to take action to mitigate climate risk?

Elsewhere Dr. Mills commendably challenges the NAIC to “take the lead on a coordinated national effort to improve disaster resilience through the adoption, enforcement, and implementation of improved building codes.” This is an excellent example of how the NAIC could play a constructive role in reducing vulnerability to climate change-induced hazards.

Takefive:
Finally, has NAMIC taken a formal position yet on the climate change. If not, when do you expect your organization to formulate such a position?

Robert Detlefsen:
Asking us to take a position on climate change is like asking us to take a position on the weather. The subject is simply not amenable to crafting a concrete and meaningful (as opposed to merely rhetorical) position statement.