California Commissioner’s Regulation to Prevent Insurance Crises From Climate Disasters, Cyber Threats, AI

California Commissioner Ricardo Lara is proposing a regulation aimed at mitigating rising insurance costs and safeguarding the state’s insurance market from catastrophic risks and technological threats.

Lara’s Long-Term Solvency Regulation is aimed at providing the California Department of Insurance enhanced oversight tools to protect from risks that may arise in the coming years.

The Long-Term Solvency Regulation aligns with the Lara’s work as a member of the International Association of Insurance Supervisors, where he contributed to the development of guidance for insurance supervisors on climate risks. The regulation focuses on solvency strategies and leverages the growing implementation of standardized climate risk disclosures by regulators worldwide.

According to the draft regulation, companies must provide information to the department to strengthen consumer protection against unforeseen challenges. Lara, who has contributed to the technical guidance of the IAIS climate risk framework, said that work has informed this proposed regulation as well as existing regulations in Europe for the banking industry. The regulation also requires documentation of risks and opportunities projected for 2030, 2040, and 2050, which could impact underwriting, investments, or operations.

The regulation will also address the evolving landscape of cybersecurity, focusing on data quality, the use of large datasets, and artificial intelligence.

Companies will be required to share information on strategies to mitigate climate-related risks, such as extreme weather patterns and gradual market shifts. These risks include sea-level rise, changes in land use and variations in water availability and agricultural productivity.

The regulation will require information on transition risks associated with new technologies, particularly regarding the reduction of reliance on greenhouse gas-emitting technologies

The department has released draft regulatory text and plans to hold a workshop on November 14 to hear input from the public.