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Jun 2020

Insurance Europe supports IAIS work on climate-change related disclosures

Source: Middle East Insurance Review | Mar 2020

Insurance Europe, the European insurance and reinsurance federation with 37 member countries, has published its response to a consultation by the International Association of Insurance Supervisors (IAIS) on its draft issues paper on the implementation of recommendations by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). 
 
It noted that the European insurance industry is fully aware of, and well-positioned to address, the financial risks posed by climate change and extreme weather, since the measurement of climate-related physical risks lies at the heart of insurers’ business models. At the same time, insurers are continuously scrutinising their investment portfolios to incorporate long-term sustainability aspects and are increasingly considering the impact of transitioning to a low-carbon economy. Given the industry’s concentration of expertise in managing, modelling and pricing climate risk, it is well placed to provide expert input where possible and so appreciates any opportunity to provide evidence and feedback.
 
In addition, European insurers support increased transparency around sustainable investments and sustainability risks, provided the provision of information is balanced and efficient. Therefore, insurers support disclosures that help consumers and investors to make informed financial decisions aligned with their objectives.
 
Insurance Europe also said in particular, European insurers support the fact that: 
  • The IAIS is considering the implementation of TCFD recommendations in various Insurance Core Principles (ICPs). Explicit references to sustainability in the ICPs will help strengthen the integration of material sustainability risks in insurers’ operations in a consistent and efficient manner. In addition, this could be an effective way of ensuring minimum standards globally. 
  • The IAIS is taking a coordinated approach between jurisdictions, reflective of the cross-border nature of climate-related risks. Coherent policymaking between jurisdictions will avoid duplicative or contradictory standards. 
  • Supervisors encourage insurers to produce robust climate-related disclosures and consider financially material climate-related risks thoroughly, provided feasibility and proportionality considerations are taken into account. In this respect, the use of qualitative scenario analysis can be a useful way to measure climate risks.
 
Insurance Europe also noted that: 
  • The implementation of TCFD recommendations through ICPs should allow sufficient flexibility for insurers to decide on the best way to deal with climate risks, in line with each company’s specific characteristics and risk profile. Supervisors need to carefully assess the appropriateness of TCFD recommendations to the insurance sector and adapt them as needed if they should serve as a de facto standard. 
  • Sustainability-related information is a prerequisite for insurers to produce robust and efficient disclosures. Currently, quality data to accomplish the proposed disclosures is lacking, which has made it difficult for insurers to make as much progress as they would like on public disclosures and on communicating to relevant users. Regulatory support is needed to enhance the quantity and quality of ESG data available to insurers. 
  • Supervisors should investigate whether there are disincentives in the prudential frameworks, such as unjustified and excessive capital requirements, to support insurers’ actions to mitigate climate risk. Insurers should not be undermined in their efforts by the regulations themselves. M 
 
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