12 States Call Out California’s ‘Affront to Sound Insurance Regulation’

June 22, 2017 by

It’s difficult to decide whether Dave Jones is underdog prize fighter Rocky Balboa or reigning champ Apollo Creed.

He’s the insurance commissioner of the most populated state in the nation and that makes him a powerful figure. But with a handful of insurance commissioners, and nearly a dozen state attorneys general and one governor now calling him out, one must wonder just how formidable is California’s insurance regulator?

Stay tuned — the answer may be revealed soon.

Outdated movie references aside, Jones has been pitted in a battle with top officials in several other states over his push to get insurers to disclose investments in fossil fuels and to encourage them to get out of those investments.

These are states where producing energy is a big part of the economy – Oklahoma, North Dakota, Montana, Texas. For many who live in these states, terms like “global warming,” “climate change,” and “clean energy,” and agreements like the Paris climate accord, are job-killing threats to their economies.

Jones has made battling climate change one of his pet causes. Jones, Washington Insurance Commissioner Mike Kreidler and a few other state regulators have worked over the past few years to bring the insurance world into the battle against climate change.

Now Jones’ efforts are being met with head-on opposition from a group of fellow state regulators.

On Tuesday Oklahoma Insurance Commissioner John Doak sent a letter to Jones expressing “grave concern” about his Climate Risk Carbon Initiative Data Call, which was designed to make public information relating to potential climate change-related financial risks faced by California insurance companies resulting from their fossil fuel-based investments.

Jones has warned that insurers could have stranded assets on their books if investments in coal and other fossil fuels tank as green energy continues to become more affordable and regulations make fossil fuel-based investments an even worse bet.

Doak’s letter was also signed by Alabama Insurance Commissioner Jim Ridling, Indiana Insurance Commissioner Stephen Robertson, Montana Insurance Commissioner Matthew Rosendale, Kentucky Insurance Commissioner Nancy Atkins and North Dakota Insurance Commissioner Jon Godfread. Cc’d on the letter was Ted Nickel, president of the National Association of Insurance Commissioners.

Doak’s letter, which calls Jones’ climate initiative an “affront to sound insurance regulation,” followed a letter to Jones from Oklahoma Attorney General Mike Hunter earlier this week.

Hunter sent a letter to Jones threatening legal action if Jones continues with the policy of requiring insurance companies to publicly disclose investments in fossil fuels, saying he believes Jones’ Climate Risk Carbon Initiative policies will harm the energy industry.

Jones launched the initiative last year. It seeks information on the amount of oil, gas, coal and utility investments held by insurance companies, and whether the insurers have divested from thermal coal, the amount of thermal coal divested and any future commitments to divest.

Jones in January called on insurance companies to voluntarily divest from thermal coal investments and required insurers with more than $100 million in annual premium to disclose publicly their investments in fossil fuels.

Hunter wants Jones to stop requiring insurance companies to publicly disclose investments in fossil fuels, and he wants California to stop calling on insurers to pledge divestiture from the coal industry.

Hunter’s letter was signed by 11 other state attorneys general and one governor. The attorneys general of Alabama, Arkansas, Indiana, Louisiana, Missouri, Montana, North Dakota, Texas, Utah, West Virginia and Wyoming, and the governor of Kentucky, were all signees.

Hunter maintains that because one-in-four Oklahomans works in the energy industry, the threats posed by the initiative will harm families, businesses and insurance carriers in Oklahoma.

“This misguided policy is negligent, politically driven, unrelated to insurance regulation and is risking a certain lawsuit,” Hunter said in the statement released by his office.

Hunter also wrote that if Jones continues “to call for divestment and require discriminatory disclosures of fossil fuel investments, we will be forced to consider the legal avenues of relief available to protect our insurance carriers, energy producers, and consumers.”

A response to the letter issued by Jones this week says he remains undeterred and explained the reasoning behind the initiative.

“Climate change poses a potential financial risk to insurance company investments in coal, oil, gas, and utilities that rely on carbon to generate electricity,” he said in a statement responding to Hunter’s letter.

Doak’s letter is clearly more biting than Hunter’s, and could be read as a challenge to Jones’ knowledge of what his job as a state insurance regulator should entail.

“It is our firm belief that your request that companies doing business in California divest from investments in thermal coal is an affront to sound insurance regulation,” Doak wrote. “Not only does it undermine the authority of each insurer’s domestic regulator, such a request substitutes traditional insurance solvency regulation with a narrow political agenda that places politics above sound insurance regulatory practices.”

Doak lectures Jones on the role of an insurance commissioner, noting that insurer solvency, which should be his primary concern, is ensured by the NAIC’s accreditation program and has worked well for decades.

“By inserting a narrow political agenda item into an out-of-state company’s investment decisions, you turn our system on its head,” Doak writes. “At the very least, your Climate Risk Carbon Initiative should be limited to your own California-based insurers, if it should be considered at all.”

Doak writes that the initiative suffers from jurisdictional, legal and economic flaws, and that Jones’ belief that thermal coal investments run the risk of becoming stranded assets is at best “mere speculation.”

“What we do know is despite all the focus placed on renewable energy sources, the development of advanced coal technologies may be far more important to shaping our energy future,” Doak writes. “Coal remains and will remain an affordable and reliable source of energy. In the next ten to twenty years, coal’s value is likely to grow, as advanced technology, including carbon capture, will continue to meet our nation’s growing need for energy, while continuing to reduce emissions.”

A spokeswoman for Jones was not immediately available to offer a statement on behalf of the commissioner in response to Doak’s letter.

But judging from the response to Hunter’s letter, it doesn’t seem like Jones will be backing down from this fight – no matter how many “red states” line up against him.

“For those climate denying politicians of red states who threaten to sue me, I will happily defend my obligation as California’s Insurance Commissioner to make sure insurers are addressing climate change related risks and to protect California consumers,” he wrote.

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