The Geneva Association has revealed the results of research by its new Climate change task force which it believes will take the industry’s response to the next level.
The association said it has mobilised experts from 17 of the world’s largest P&C and life insurers, representing the companies of its CEO members, to develop and hone climate risk assessment methodologies and tools for the insurance industry.
The first report from the task force, Climate Risk Assessment for the Insurance Industry, found 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.
It said 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.
As such it has created an integrated decision-making framework for climate risk assessment that considers four dimensions: business line (P&C versus life); the balance sheet (assets versus liabilities); the time horizon (short-medium- versus long-term); and the type of risk (physical and transition).
Maryam Golnaraghi, Director Climate Change and Emerging Environmental Topics and project leader said: “This initiative is taking the insurance industry’s climate action and collaboration to the next level. Building on lessons learned from previous pilots and initiatives, our task force is focused on advancing climate risk assessment and scenario analysis anchored in companies’ decision-making, in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). Our 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.”
The task force said it would now seek to engage with regulators, supervisors, rating agencies and the scientific community to identify the most appropriate approaches.
Jad Ariss, the Geneva Association’s Managing Director, warned climate change was now testing the industry like never before.
“In 2020 alone, the world witnessed massive wildfires in California and Australia, historic floods in China and a record hurricane season in the Atlantic,” he said. “The societal impacts of climate change have become ubiquitous, and individuals and institutions must fully commit now to confronting the climate crisis. Insurers are obvious, strong leaders on global climate action, given their core functions – managing risk and investing – and our industry-led initiative demonstrates that they are proactively rising to the occasion.”