Acting Superintendent of Financial Services Adrienne A. Harris today announced that the New York State Department of Financial Services (DFS) has issued final guidance to New York-regulated domestic insurers detailing DFS’s expectations related to their management of the financial risks from climate change. After issuing a proposed version of the guidance in March, DFS received comments from a broad range of stakeholders, including insurers, trade groups, consumer advocates, climate experts, rating agencies and other financial regulators. The final guidance reflects DFS’s careful consideration of all comments received.

“Climate change is an urgent issue that poses wide-ranging and material risks to the financial system. Insurers, which are uniquely impacted as climate change affects both sides of their balance sheets, also play a critical role in managing climate risks,” said Acting Superintendent Harris. “The guidance is intended to support insurers’ efforts to manage the financial risks from climate change, bolstering the safety and soundness of the industry and the protection of consumers. We are grateful to all commenters for their engagement and contributions to the final guidance.”

The guidance was informed by DFS’s ongoing dialogue with the insurance industry and international regulators and is based on the New York Insurance Law, National Association of Insurance Commissioners manuals, and the work of international regulators and networks. Building on an earlier circular letter on Climate Change and Financial Risks, the guidance sets out DFS’s expectations that all New York insurers start integrating the consideration of the financial risks from climate change into their governance frameworks, business strategies, risk management processes and scenario analysis, and developing their approach to climate-related financial disclosure.

Financial regulators across the globe are increasingly recognizing climate change as a threat to financial stability. DFS is proud to be the first U.S. financial regulator to issue a holistic set of expectations on managing the financial risks from climate change. As described in the guidance, DFS expects insurers to take a strategic approach to managing climate risks that considers both current and forward-looking risks and identifies actions required to manage those risks in a manner proportionate to the nature, scale, and complexity of insurers’ businesses. Specifically, an insurer should:

• integrate the consideration of climate risks into its governance structure at the group or insurer entity level;
• when making business decisions, consider the current and forward-looking impact of climate-related factors on its business using time horizons that are appropriately tailored to the insurer, its activities, and the decisions being made;
• incorporate climate risks into the insurer’s existing financial risk management, including by embedding climate risks in its risk management framework and analyzing the impact of climate risks on existing risk factors;
• use scenario analysis to inform business strategies and risk assessment and identification; and
• disclose its climate risks and engage with the Task Force on Climate-related Financial Disclosures and other initiatives when developing its disclosure approaches.

DFS expects the guidance to serve as a basis for supervisory dialogue and to help insurers familiarize themselves with climate risks and develop their capacity and processes for managing them in accordance with the timelines specified in the guidance. DFS intends to monitor insurers’ progress in implementing the expectations in the guidance, which requires insurers to implement the expectations relating to board governance, and to have specific plans in place to implement the expectations relating to organizational structure, by August 15, 2022. DFS plans to issue further guidance on the timing for implementation of the more complex expectations outlined in the guidance.

DFS will host a webinar on November 22, 2021 at 9:30-10:30 am to provide an overview of the major changes made to the proposed guidance that was issued for public comment, as well as the rationale for those changes. Interested parties can register with registration password ClimChg112221.

A copy of the final guidance can be found on the DFS website.