How the insurance space is tackling climate risk assessment
Risk, identifying, modelling, and managing it, is at the core of what the insurance industry does. And today there is no greater long-term risk than that posed by climate change. This puts the insurance industry centre stage when it comes to taking action on climate change, both through its engagement with clients during the underwriting process and when investing their dollars.
To do this though, like any industry, from banking to legal, there needs to be a framework that helps insurers undertake climate risk assessment. And the best people to do this? The world's leading insurers of course.
That's why the Geneva Association, the only global association of insurance companies, has mobilised experts from 17 of the world's largest P&C and life insurers, representing the companies of its CEO members, to develop climate risk assessment methodologies and tools for the insurance industry.
The task force, which is made up of insurers including Achmea, Aegon, AIG, Allianz, Aviva, AXA, Chubb, Dai-chi Life, Hannover Re, Intact Financial, Manulife Global, MetLife, Munich Re, Prudential Financial, SCOR, Swiss Re, and Tokio Marine, is set to drive innovation in the climate risk assessment space.
Insurers rising to the climate change occasion
According to Jad Ariss, Geneva Associations’ Managing Director, when it comes to global climate action, insurers are “obvious, strong leaders” given their core functions of “managing risk and investing”. And with 17 leading insurers on board with this industry-led initiative, the biggest names among them, it demonstrates the industry is “proactively rising to the occasion”.
And rise they need to, considering that the societal impacts of climate change which have become ubiquitous. “In 2020 along, the world witnessed massive wildfires in California and Australia, historic floods in China, and a record hurricane season in the Atlantic,” adds Ariss.
The first report lays the foundations and framework
Following engagement with regulators, supervisors, rating agencies and the scientific community to identify the most appropriate approaches to climate risk assessment tools, the task force has released its first report – an integrated decision-making framework for climate risk assessment.
The task force founds that for both P&C and life re/insurers, climate change poses different levels of physical and transition risks to both sides of the balance sheet, liabilities and assets.
The report, Climate Risk Assessment for the Insurance Industry, outlines how climate risk assessment requires qualitative and quantitative approaches over short- and long-term time horizons and must account for uncertainties associated with transitioning. Knowledge sharing across companies and with other stakeholders is critical to raising risk awareness and leveraging all available expertise.
This first report “lays the foundation for us to design and test methodologies and tools, in collaboration with regulators and the scientific community, to converge on robust solutions for P&C and life insurers”, says Maryam Golnaraghi, Director Climate Change and Emerging Environmental Topics and project leader.
The task force will continue its work analysing the insurance regulatory landscape related to climate risk and conduct a technical 'deep dive' to develop scenario analysis and qualitative and quantitative tools.