Is your enterprise risk management framework climate-ready?


Is your enterprise risk management framework climate-ready?

Emerging regulatory expectations for insurers

With increasing global, national, and local climate regulations, insurers must increase their focus on climate change risk management. Explore our sustainability, climate, and equity (SC&E) risk framework for insights on the seven key areas where climate risk and regulations will have the most impact on an organization.

Climate regulations impact insurance and risk management

It’s not easy to keep track of the evolving regulatory landscape for climate issues. Multiple international bodies have recently issued guidance and requirements, which can affect US financial companies as well. In the United States, it is well known that the forthcoming Securities and Exchange Commission (SEC) rule could greatly change how public companies approach climate risk analysis and reporting. For American insurers, there is the additional variable of state-level laws, the interpretation and enforcement of which by state insurance regulators matter even more than federal actions. 

A high-level view of the current environment of state-level climate regulations for insurers is presented here, using the guidelines from the New York Department of Financial Services (NYDFS) as the main example. These expectations align with the determination of the International Association of Insurance Supervisors (IAIS) that climate change is a material risk for the insurance industry.

A climate risk management framework

To clarify the different ways climate risk regulations can impact an insurer, we will organize the NYDFS’s insurance industry expectations according to Deloitte’s sustainability, climate, and equity (SC&E) risk framework. The climate risk management framework reflects the seven main areas where climate risk and climate regulations have the most impact on an organization: governance and policy; risk strategy and appetite; risk assessment, measurement, and analytics; monitoring and reporting; product risk management; risk data and systems; and risk operating model, people, and culture.

Is your enterprise risk management function climate-ready? | Emerging regulatory expectations for insurers

Climate risk regulations are constantly evolving around the world as societies respond to the threats posed by climate change, and to the economic realities of rapid decarbonization. These are some of the latest developments for insurers in the US market as of the summer of 2023: 

  • The NYDFS is currently studying the level of compliance with their climate risk guidance, which we discuss in this paper. NYDFS will issue a report, though the timeline for publication has not been disclosed.1
  • Revisions are currently underway for the National Association of Insurance Commissioners (NAIC) to incorporate climate risk considerations into the Financial Condition Examiners Handbook and Financial Analysis Handbook. These changes are intended to be finalized and adopted in 2023, with a goal to have them included in the 2024 publications of the handbooks. The NAIC’s Own Risk and Solvency Assessment (ORSA) subgroup is considering if these changes should be extended to ORSA report requirements.2
  • There is action at the federal level, too: starting in 2022, the US Department of the Treasury’s Federal Insurance Office (FIO) suggested collecting and analyzing property and casualty insurance data to better understand the industry’s climate risk vulnerabilities.3
  • The FIO unveiled its report on climate-related issues and gaps in insurance supervision on June 27, 2023.The FIO acknowledges that the NAIC and numerous state regulators have taken important steps toward incorporating climate risk considerations into the industry. Additionally, the FIO shared twenty recommendations, which include: the NAIC should continue focusing on climate and developing their efforts, and that “all state insurance regulators…develop and adopt climate-related risk monitoring guidance appropriate for their markets, which should include expectations for insurers to incorporate climate-related risks into their annual financial planning, as well as into their long- and short-term risk management processes...”


Per discussions with representatives of the NYDFS, Climate Division, in June 2023.
NAIC Climate Resiliency Task Force, March 24, 2023, meeting minutes.; and discussions with NAIC representatives in June 2023. 
US Department of the Treasury, “Treasury’s Federal Insurance Office Takes Important Step to Assess Climate-related Financial Risk – Seeks Comment on Proposed Data Call,” October 18, 2022.
US Department of the Treasury, “Insurance Supervision and Regulation of Climate-Related Risks,” June 27, 2023.

Planning for climate change risk management

In addition to NYDFS’s guidelines, other states are converging on climate risk standards for insurers, and insurance companies need to be knowledgeable about their climate risk exposures. Insurers will be expected by regulators, as well as other important stakeholder groups including customers, to have a coherent narrative about their environmental impact, exposure to and measurement of physical and transition risks, and strategies to mitigate risks and capitalize on opportunities. 

With past and forthcoming guidance from the National Association of Insurance Commissioners’ (NAIC) climate risk disclosure survey, the proposed SEC climate disclosure rules, and the other sources of guidance discussed previously, a picture of the next generation of risk management disclosure for climate is coming into focus. It is important for firms to consider their enterprise risk management framework, the impacts of climate on their business models, and how to enable accurate disclosure. 

The ideal time to begin working toward that future state is now, before regulatory requirements harden. With the right frameworks and advisers, a journey to a leading position in sustainability is within reach.

Get in touch

David Sherwood
Managing Director
Deloitte & Touche LLP

Brandon Righi
Manger in Risk and Financial Advisory
Deloitte & Touche LLP

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