Prior to becoming NAIC President, Director Farmer led the NAIC’s efforts in developing a new model act to address rising cybersecurity issues and consumer concerns about the preservation and privacy of their personal information in the face of the growing number and size of corporate data breaches. In 2018, Director Farmer oversaw the passing of the South Carolina Insurance Data Security Act, a law that is the first in the nation to require insurance companies to have a comprehensive and secure plan to protect consumer data.
Director Farmer is now focused on resuming his duties as Co-Chair of the Climate Risk and Resiliency (EX) Task Force with California Insurance Commissioner Ricardo Lara to address issues related to climate change that plague not only all of our citizens, but the industry in general, including the catastrophic losses resulting from natural hazards. “Broadly speaking,” Director Farmer said, “we will be looking at climate events that affect areas of the country differently. So, for example, California would be experiencing more in the area of wildfires and earthquakes, while the Midwest might experience more with tornadoes and floods. Of course, in South Carolina, we have multiple perils that we face that may not affect other areas of the country such as hurricanes and tidal flooding. It is a very broad-based topic and a challenge for all in the industry to address.”
The objective of risk resilience is to help ensure people can overcome a potentially catastrophic event and return to normal life as quickly and effectively as possible. It is one of the most talked-about topics today in the field of disaster prevention and management. “While the insurance industry is not directly involved in catastrophe management or in mitigating the frequency or severity of natural hazards themselves, we do help reduce these types of risks by enabling communities and individuals to manage exposure and reduce vulnerability,” Director Farmer noted. Insurance plays a key role in this context, since it contributes to prompt and reliable financing of recovery measures. Again, each state faces its own natural disasters. For example, climatologists, and other scientific experts, predict flood events to increase in frequency and/or severity in certain locations as the climate warms, requiring a new level of understanding and awareness about how communities and households can be more resilient. The less an extreme event harms a society, the faster it can recover from the effects and get back on its feet. “The more losses are insured, the less of a decline there will be in economic output following a natural disaster, and therefore the faster the country can recover.”
The Climate Risk and Resiliency Task Force will be extremely busy, if its virtual meeting on November 3, 2020 is any indicator. Currently, the workstreams are broken into five separate categories:
- Workstream number 1 will focus on matters of solvency, including tools and methods to quantify an insurer’s risk exposure (Co-Vice Chair: Maryland Commissioner Kathleen Birrane).
- Workstream number 2 will focus on enhancements to the climate risk disclosure and alignment of climate-related financial disclosures (Co-Vice Chair: Oregon Commissioner Andrew Stolfi).
- Workstream number 3 will focus on pre-disaster mitigation, including collaboration with various stakeholders and consumer outreach (Co-Vice Chair: Nebraska Director Bruce Ramge).
- Workstream number 4 will focus on technology used to understand and identify climate-related risk (Co-Vice Chair: Louisiana Commissioner Jim Donelon).
- Workstream number 5 will focus on innovation including products brought to market to respond to climate risk (Co-Vice Chair: Hawaii Commissioner Colin Hayashida).
At the annual meeting in December, these matters were discussed in more detail, and it is inevitable that this massive project will be of significant interest and importance to the NAIC in 2021 and for many years to come. Several organizations, such as the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, and the Reinsurance Association of America also have suggested recommendations to the charges for the task force work.
To sum it up, this was a year Director Ray Farmer expected essentially to become a million-miler in air travel, and it turned out that he is now the million-miler on Zoom. Much to his chagrin, the NAIC has had no in-person meetings in 2020. Virtually all NAIC meetings continue to be held electronically, and it is doubtful there will be any in-person meetings until the middle of 2021, at the earliest. Having said that, this has been a very satisfying time for Director Farmer. He has been working with his staff to ensure they all stay healthy and safe during the pandemic, while at the same time continuing the extremely important job each of them do remotely. The NAIC has a truly dedicated workforce. State regulation of insurance is strong and will continue to remain strong and responsive to the needs of all the citizens in each of the 50 states and territories.