AM Best: additional clarity around disclosure requirements will allow for uniformity

Ambitious plans to reduce carbon emissions, protect communities and natural habitats, and mobilise finance, agreed to by world leaders at the recent United Nations COP26 meeting, are likely to impact the (re)insurance industry, creating a range of opportunities and challenges, according to rating agency AM Best.

Specifically, the agency believes that additional clarity around disclosure requirements will allow for uniformity which is currently lacking.

At the same time, it suggested that the (re)insurance industry will need to be engaged as governments around the world look to implement legislative, regulatory, and practical measures designed to head-off potential future extreme climate scenarios.

In recent years, it said, demand for increased disclosure on climate-related risks, including for (re)insurers, has been growing as investors, regulators, and lawmakers have acknowledged that these risks can be financially material and a potential threat to financial stability.

A number of central banks and regulators, particularly in Europe, have imposed disclosure requirements to identify, monitor, and manage climate-related risks, along with broader environmental, social and governance (ESG) risks.

The UK Government confirmed in late October 2021 that the largest UK-registered companies and financial institutions will have to disclose climate-related financial data (via disclosures aligned with the Task Force on Climate-related Financial Disclosures) as early as April 2022.

The findings are revealed in a new report by AM Best, Insurance Innovation Under the Spotlight After COP26.

Principal Takeaways

  • The transition from a high to low-carbon economy should present (re)insurers with a broad range of underwriting opportunities and challenges
  • (Re)Insurers, in their role as institutional investors, can help mobilise funds to support thedevelopment and scalability of new technologies needed to accelerate decarbonisation
  • Increasingly, given the accelerating pace of change in global operating environments,insurers that fail to embrace innovation may find it difficult to sustain long-term success andultimately be subject to anti-selection and loss of relevance

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