WASHINGTON — In a season of daunting wildfires and flooding, the Biden administration is taking an initial step to assess how climate change could harm financial markets — planning to launch on Tuesday a 75-day comment period on how the impacts could reshape the insurance sector.
Insurers face payouts from wildfires and flooding risks that could cause premiums to rise for many Americans, but they're also among the largest investors in U.S. financial markets, with $4.7 trillion in assets as of the end of last year, according to the Treasury Department notice being posted in the Federal Register.
A senior Treasury official said the information gathered would help to more fully understand how climate change could potentially destabilize the stock, bond, commodities and housing markets and how to protect markets as a result. The official, insisting on anonymity to discuss the notice, said the goal would be to make any data usable for consumers, companies, states and regulators.
The request for information comes as the United States is coping with the unmistakable costs of climate change, with wildfires raging in western states and Hurricane Ida knocking out power for New Orleans and hundreds of thousands of people in Louisiana.
Joe Brusuelas, chief economist at the consultancy RSM, has estimated that the hurricane damage will cause a 0.2% drag in U.S. gross domestic product this quarter. That drag should be made up once rebuilding takes place. But economic costs could endure because of higher insurance costs. The First Street Foundation estimated in a report this year that the 4.3 million homes at risk of substantial flooding would need to see their premiums for flood insurance rise 7.2 times over the next 30 years to cover the expense of the growing risks.
President Joe Biden has focused on the physical damage in virtual meetings this summer with state governors and local leaders, yet he signed an executive order on May 20 to make sure that financial institutions are specifically prepared to navigate the challenges from climate change.
Treasury's Federal Insurance Office is following up on that order by publishing a request for information with 19 key questions. These questions include what types of data are needed to best measure the risks, how to standardize climate-related disclosures and which factors to consider for major market disruptions.