Climate Risk Initiative

CLEE’s Climate Risk Initiative researches and develops market based, regulatory and public policy tools to assist the insurance and financial industries in recognizing, addressing and responding to the risks caused by climate change. The Initiative harnesses the expertise of leading law faculty and students, researchers, and public and private sector leaders to develop high-impact market based, regulatory, and public policy approaches to address climate risk facing the insurance sector and the broader financial sector. It produces policy guidance for key decision-makers, creates a space to convene industry and other stakeholders for action-oriented discussion, promotes research to the public via events and media outreach, and serves as a resource to policy makers seeking to implement new and innovative tools.

Meet the Director

Dave JonesAs California Insurance Commissioner between 2011 and 2019, Dave Jones led pioneering efforts to address climate change and the risks it poses to the insurance sector. Under his leadership, the Department of Insurance launched the Climate Risk Carbon Initiative, a first-of-its-kind effort requiring major insurers to disclose their fossil fuel investments and requesting that they divest from thermal coal enterprises. Dave additionally spearheaded groundbreaking climate risk scenario analyses of insurers’ investment portfolios to assess the potential exposure to climate change related risks of trillions of dollars of insurer investments. He was also founding Chairperson of the Sustainable Insurance Forum, a working group of insurance regulators from across the globe developing best supervisory practices to address climate risk.

Recent Publications & Events


October 2024

Federal Reinsurance for State FAIR Plans: A Policy Proposal to Assist State-Created Insurers of Last Resort

To provide insurance to homeowners where private insurers decline to write insurance, 33 states have enacted laws creating Fair Access to Insurance Requirements (FAIR) plans which write insurance for homeowners otherwise unable to obtain private insurance. This policy brief proposes that the federal government establish a federal reinsurance program for state-level FAIR Plans to reduce the cost of purchasing private reinsurance for these plans. This reduction would help lower the cost of providing FAIR Plan insurance and enable FAIR Plans to access more reinsurance. As a result, the likelihood that FAIR Plans would need to assess private insurers if claims exceed reserves would decrease, addressing a factor contributing to private insurers reducing or declining to write insurance. A federal program of reinsurance that does not seek to make profits and whose reserves are funded by US taxpayers would be able to offer reinsurance at a lower premium price than private reinsurers and provide better terms such as lower attachment points and more coverage than private reinsurers are willing to take on. It would also avoid the potential negative consequences of creating a broader taxpayer-subsidized scheme of insurance, like that of the National Flood Insurance Program (NFIP). 

Read the full policy brief here.


April 2023

Scenario Analysis for California’s Insurance Regulator

Looking Forward: A Guide to Climate Risk Scenario Analysis Design for California's Insurance Regulator

California’s insurance industry faces significant risks from climate change, including both the transition risks facing all financial institutions as the global economy shifts toward decarbonization and the singular combination of physical risks–wildfire, drought, coastal hazards, extreme heat—that threaten California’s communities and businesses. Accurately assessing and mitigating these risks will be vital to ensuring the long-term viability of the insurance market in California, the availability and affordability of insurance for California residents and businesses, and the state’s physical and financial resilience in a changing climate.

CLEE’s report Looking Forward explores the field of climate risk scenario analysis—a key instrument to assess financial risk in projected future scenarios—and makes recommendations for the California Department of Insurance to design scenario analysis exercises and engage California insurance companies in forward-looking risk assessment.

Learn more and read the report here.


December 2022

Comment Letter: Federal Insurance Office Climate Risk Data Call

The Federal Insurance Office (FIO) proposed in October 2022 to undertake a national survey of insurers to collect and analyze data on the impact of climate change on home insurance availability and affordability. Climate Risk Initiative director Dave Jones filed a formal comment letter supporting the critical need for FIO to undertake this climate risk survey, but also made specific recommendations to improve the survey to make sure it collects the data needed to provide a full picture of the impact of climate change on property insurance underwriting. Jones also urged FIO to separately undertake a survey of  insurers in all market segments (property & casualty, life, health, etc) with regard to climate risks to the $8 trillion in investments held by US insurers.

Comment Letter


October 2021

Developing Climate Risk Policy for State Procurement and Bond Issuance

California is home to one of the largest economies in the world, and the state plays a direct role in this economy as a steward of assets, a regulator, a revenue generator and service provider, and a direct spender of funds on a range of infrastructure, goods, and services. In light of the risks that climate change poses to state industries and financial institutions, state lawmakers  and experts have recently sought to increase knowledge of climate-related risks throughout the state economy. In two new policy notes, CLEE explores potential opportunities to develop climate risk disclosure policy through the lens of state procurement and bond issuance. The policy notes include proposed legislative language to advance these risk disclosure concepts in state law.

Policy Note – Procurement and Climate Risk

Policy Note – Bonds and Climate Risk


Summer 2021

Developing Climate Risk Disclosure Policy for California

CLEE’s September 2020 California Roadmap recommended (among other actions to integrate climate risk and investment policy) that the state legislature require California corporations and financial institutions to disclose their climate-related financial risks to the state, potentially via the existing Task Force on Climate-Related Financial Disclosures (TCFD) framework. Disclosure by state corporations and financial institutions would help state leaders assess the risks facing the state’s economy, drive better decision-making by companies, regulators, and individual investors, and spur action around the country. Following publication of the Roadmap, CLEE researched and drafted legislative proposals to accomplish this disclosure requirement. Senate Bill 449, introduced in the 2020-2021 session, reflected CLEE’s proposals.

Senate Bill 449


December 2020

Insuring Extreme Heat Risks

Insuring extreme heat risks coverExtreme heat is a leading climate-related health risk, responsible for thousands of deaths and hospitalizations per year in the United States, a number that will grow significantly this century. Local governments are developing resilience plans that include comprehensive extreme heat elements to help address the expansive risks posed by extreme heat, including not just physical health but also mental health, educational success, birth outcomes, worker productivity, transportation networks, and utility infrastructure. But extreme heat impacts are especially diffuse and difficult to address, and they disproportionately affect vulnerable and disadvantaged communities.
 
CLEE’s new report, Insuring Extreme Heat Risks, studies the potential for insurance and other financial risk-transfer mechanisms to help local governments respond to and mitigate the extreme heat risk they will face with increasing regularity in coming decades.
 

September 2020

The California Roadmap

California Roadmap coverThe increasingly clear impacts of climate change, the growing urgency of social justice movements, and the COVID-19 pandemic are all demonstrating how environmental, social, and governance (ESG) issues shape local and international economies. California, as one of the largest economies in the world and a hub of innovation in business as well as climate policy, is uniquely poised to lead the push for greater consideration of ESG issues.
 
CLEE’s Climate Risk Initiative, led by Dave Jones, has partnered with the Principles for Responsible Investment on a policy roadmap to spark this effort. The California Roadmap includes recommendations for state policymakers, public pension funds, and private investors to better integrate ESG issues in their investment decision-making. The recommendations, ranging from corporate reporting of climate-related risks to ESG-related disclosure for publicly financed projects, promote financial health and stability for California governments, companies, public employees, and private investors. They also offer California public and private sector leaders an opportunity to lead the nation in another urgent area of public policy.
 

January 2020

New Year’s Resolution for US Financial Regulators: It is well past time to act on climate

Dave Jones urges US financial regulators to incorporate climate risk into their policy in his recent op-ed in Responsible Investor.


August 2019

From Brussels to the Bay: Climate Risk and Sustainable Finance in the EU and California

The global financial system faces structural risks from the worsening impacts of climate change and the various policy responses to it. As jurisdictions like the European Union (EU) and California seek to address these risks, they face significant questions about what actions will be necessary and how financial regulators and industry members across the globe will need to coordinate decision-making and resource-sharing.

To address these concerns, we hosted experts and leaders in sustainable finance from California and the EU in May 2019 for a conference to discuss climate-related financial risks and key regulatory developments in the US and Europe. These include the EU Sustainable Finance Action Plan and Green Taxonomy efforts that seek to drive sustainable investment through innovative regulatory incentives and US industry partnership in implementing new disclosure and accounting standards. Our conference brief highlights the key insights delivered at the conference.


July 2019

California Climate Risk: Insurance-Based Approaches to Mitigation and Resilience

As climate change poses new and evolving risks for California residents and businesses, the insurance industry will play an increasingly important role in managing these risks. California is pursuing policies that mitigate greenhouse gas emissions and build resiliency to climate risks. Insurers have opportunities to address climate-related risks through innovation across their risk management, insurance, and investment activities, and through increased collaborative efforts.

California Climate Risk: Insurance-Based Approaches to Mitigation and Resilience provided a space to discuss these issues. The event was convened by California Insurance Commissioner Ricardo Lara in partnership with UN Environment’s Principles for Sustainable Insurance Initiative, UCLA School of Law’s Emmett Institute on Climate Change and the Environment, and UC Berkeley School of Law’s Center for Law, Energy, and the Environment.


March 2019

Insuring California in a Changing Climate: Adapting the Industry to New Needs, Risks, and Opportunities

Climate change poses significant risks to the insurance industry, even as the industry has the opportunity to help California residents and businesses mitigate their own risks. As disaster events become more common and complex, markets transition away from fossil fuels, and climate litigation accelerates, the industry will need to adapt rapidly while Californians will need continued access to robust protection. Our new symposium brief highlights the key concerns and top policy and market solutions available to protect insurers and consumers alike.


SEPTEMBER 2018

TRIAL BY FIRE: MANAGING CLIMATE RISKS FACING INSURERS IN THE GOLDEN STATE

Climate change presents unprecedented risks to the insurance industry,Cover of TRIAL BY FIRE: MANAGING CLIMATE RISKS FACING INSURERS IN THE GOLDEN STATE showing hills burnt by fire from increased wildfires and storm events to potential litigation and economic transitions. The industry faces these dynamic challenges at the same time that insurance products are becoming more necessary but less available and affordable.

Our report, Trial by Fire, documents the nature and extent of the risks faced by insurers and residents in California and offers a range of recommendations to protect the industry and the entire state in a changing climate.


Climate Change Poses Risks for Financial Sector

Climate change poses significant physical, transition and liability risks to insurers, banks, and other firms in the financial sector and firms in the real economy. Insurers in particular face underwriting risks and losses associated with the physical impacts of climate change, such as more frequent and severe climate-related catastrophes, including wildfires, droughts, tornadoes, hurricanes, and floods. The 2017 and 2018 California wildfires, for example, resulted in record breaking loss of life, destruction of homes and businesses, and record breaking losses for home insurers. In addition, insurers as investors face transition risk — the risk that a transition away from greenhouse gas-emitting industries will reduce the value of investments insurers hold in those industries. Finally, insurers indirectly face liability risk: industries that contribute to climate change may be held liable at some point in the future by courts for damages due to climate change, which in turn could impose costs on insurers who provide liability insurance to those industries.

In general, too many firms in the real economy and the financial sector are not recognizing, evaluating, disclosing, or addressing these climate related risks. At the same time, some insurers are addressing climate change-related risks by ceasing to renew or write insurance for insureds facing those risks, which leaves businesses, homeowners and renters without financial mitigation for losses and creates demand for public policy responses. The financial sector’s delay in recognizing these climate risks and the failure to realign capital accordingly, away from climate change-causing industries and toward those which will reduce, adapt to, or mitigate climate change, poses  significant financial regulatory and public policy challenges.