A global survey of top financial services regulators reveals “environmental stewardship” has now become one of eight most pressing priorities.
Research group The Geneva Association listed the eight current priorities as policyholder protection, the insurer’s financial health, corporate governance and strategy, the insurability/affordability of insurance solutions, financial stability, raising risk awareness, addressing data/risk assessment services and environmental stewardship.
The Association’s taskforce on climate change risk assessment for the insurance industry – which includes 53 experts from 18 insurance and reinsurance companies – notes the development of global baseline standards for sustainability reporting is underway by the International Sustainability Standards Board.
“Mandatory regulatory requirements for climate disclosure over the next few years are imminent,” the Association’s latest report said. “Over the last few years, we have witnessed important regulatory developments concerning climate change in many jurisdictions, with significant implications for companies’ efforts to assess and disclose the impacts of climate change on their business models.
The report details regulators’ mutual priorities and related questions for insurers, as well as strategic guidance on how to “anchor climate change risk assessment in core business decision-making”.
It says insurers across the globe are at different stages of assessing the impacts of climate change risks on their business model, with distinct trends by jurisdiction, line of business and size of the company.
“While insurers in all business lines have started exploring the materiality of climate change risks on each side of the balance sheet, for life & health insurers in particular, more research is required to assess the attributions and materiality of climate change to their underwriting exposures over various time horizons,” says the report, which provides a 10-step template to help companies design business use cases.
More work is required by insurers and regulatory bodies to identify gaps in data and develop the analytical tools to conduct forward-looking climate risk assessment, it says.
“Climate change risk assessment requires a company-wide mandate with clear accountability. Central to this process is the development of overarching decision-relevant questions that need to be addressed by the board and the executive management.”
It also says a “growing number of critics” are calling out the misalignment of net-zero pledges with what companies can actually deliver and the possibility of “greenwashing”, which could lead to potential reputational and climate litigation risks or even regulatory action.
“Robust intra- and inter-sectoral collaboration is the only way to expedite the development and convergence of good practices, meaningful baseline requirements for decision-useful climate change risk assessments and disclosures that would allow for cross-company comparisons,” the report said.
“We acknowledge and deeply appreciate the growing proactive collaboration and engagement across the insurance industry and with key regulatory and standard-setting bodies in the financial sector.”