Increased frequency, severity of weather-related events linked to climate change is impacting insurance sector globally; must strengthen resilience of financial system to climate-related risks; IRE CB expects all insurers to monitor exposure to climate risk.
Increase in insured claims arising from physical events alongside impact of necessary actions to transition away from greenhouse gas intensive activities, means (re)insurers need to take action now to assess and appropriately manage climate change risk.
Climate Change Risk Guidance
Noted consensus action is required but uncertainty on what to do and where to begin.
An IRE CB survey in May 2021 found only 20% of (re)insurers fully integrate climate-change risk in their risk management framework; less than half conduct stress tests.
Proposed guidance aims to clarify IRE CB's expectations on how (re)insurers address climate change risks in their business, help them to develop governance, frameworks.
Proposed guidance currently aimed at (re)insurance sector, given key role insurance plays in assessing, managing climate change risk as part of its core business activities, IRE CB will consider adapting the guidance for other sectors in due course.
Guidance Main Principles
Proposed guidance is based on a set of overarching principles, sets proportionate expectations dependent on the nature, scale and complexity of the (re)insurer.
Overarching principles include iterative approach: insurers must build experience, capacity in this area; sophistication of methodologies expected to improve over time.
Climate change risk is a key risk, should no longer be managed as an emerging risk.
Insurers should consider impact of double materiality on their activities.
Own risks and solvency assessment (ORSA) is key to adopting an integrated approach.
Time horizons in assessing their exposure to climate change risk, insurers should consider impact of climate change over short, medium, long term.
Also group engagement: where insurers leverage group policies and activities, they should ensure that these are appropriately adapted for the local entity.
An an infographic provides a visual overview of the approach to assessment, ongoing management of a (re)insurer’s exposure to climate change risk in the guidance.
The deadline for feedback on the proposed guidance is Oct. 26, 2022.