Insurance industry perspectives on regulatory approaches to climate risk assessment - Issue brief

This issue brief, produced by the Geneva Association Task Force on Climate Change Risk Assessment for the Insurance Industry, offers an overview of current approaches and associated strengths and challenges, based on a review of the activities of 12 international, regional, national and sub-national financial services regulatory bodies. Since 2017, following the release of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (FSD-TCFD), climate risk assessment and related disclosures are gaining momentum among financial services and insurance regulators and standard-setting bodies. Efforts by a number of international, regional and national regulatory and standard-setting bodies have been underway to experiment and share experiences related to methodologies and approaches for forward-looking climate risk assessment and scenario analysis. Insurance regulators and standard-setting bodies are increasingly focused on devising methodologies for climate risk assessment and scenario analysis to support the insurance industry in dealing with the potential impacts of climate change. 

There are opportunities to further enhance inter- and intra-sectoral engagements for developing climate risk assessment and scenario analysis for the financial and insurance sectors. The findings lead to the following recommendations for financial and insurance regulatory and supervisory bodies:

• For well-designed regulatory climate change risk assessment and scenario analysis, the instigating regulatory body should explain how that approach will deliver meaningful and decision-useful outputs.
• It is important to be agile and adaptable as climate science, the methods for assessing climate change impacts and re/insurers’ understanding of these impacts on assets and liabilities are evolving quickly.
• Strengthened collaboration of regulators and the insurance industry will help expedite the development of and convergence on best practices.
• Collaboration among regulators from different jurisdictions is vital to bring engagement with the financial and insurance sectors to the global level.