IAIS, SIF call on industry to scrutinise climate risk
Intensifying climate risks such as extreme weather events, present significant challenges for the insurance sector and warrant “ongoing and intensifying scrutiny” by supervisors, highlights new a new paper from the International Association of Insurance Supervisors (IAIS) and the Sustainable Insurance Forum (SIF).
The Issues Paper on Climate Change Risks to the Insurance Sector marks the first effort by an international financial standard setting body to assess how climate change risks may affect financial institutions.
Physical, transition and liability risks as well as figures on extreme weather events point to a growing trend of damages, both for insured and uninsured goods. In 2017 alone, a series of major hurricanes and other natural disasters brought insured losses to a peak of USD138 billion. Overall economic losses from natural disasters in that year amounted to a total of USD340 billion – the second highest annual figure ever recorded – drawing attention to a clear insurance gap for weather-related losses. A massive 83 percent of these losses were concentrated in North America. According to Aon Benfield, the total economic losses from hurricanes in 2017 were nearly five times the average of the preceding 16 years (2000-2016). Losses from wildfire in 2017 were by far the highest ever recorded during a single year. In California, for example, insured losses from wildfires reached USD13 billion, stemming from damage to 21,000 homes and 2,800 businesses.
“Climate change is now recognised as a critical emerged risk facing the insurance sector. The Issues Paper is an important resource and capacity building tool for supervisors and insurance firms alike. Going forward the SIF will continue to work in partnership with IAIS to help strengthen strategic responses and it’s leadership on climate risk,” Geoff Summerhayes, SIF chair, said at the IAIS Executive Committee meeting in Moscow, where the paper was adopted. “The Issues Paper is an important resource and capacity building tool for supervisors and insurance firms alike. Going forward the SIF will continue to work in partnership with IAIS to help strengthen strategic responses and its leadership on climate risk.”
The paper sets out a three-pillar framework of observed approaches to address climate change risks, which supervisors may consider in designing and implementing their own efforts. Drawing on an internal survey, the paper sets out ten state-of-the-art approaches undertaken by SIF members – including Australia, Brazil, France, Italy, the Netherlands, Sweden, the United Kingdom, and the US states of California and Washington in the United States.
