With extreme weather impacting communities across the world in unprecedented ways, leading insurance supervisors from around the world are developing best practices to make sure insurers are considering and addressing climate-related risks in their underwriting and reserving. Over 10 insurance regulators gathered at the Sustainable Insurance Forum (SIF) in Kuala Lumpur to develop guidance so that insurance firms can respond effectively to climate risks. Supervisors taking part included those from Australia, Brazil, France, Morocco, the Netherlands, Singapore, South Africa and the UK as well as California and Washington state in the USA, with Malaysia as an observer.
The insurance sector plays a key role in assisting sustainable development – both through the protection it offers for health, property, and other risks, as well as through its investment strategies. Launched in December 2016, the Sustainable Insurance Forum brings together insurance supervisors from all continents to tackle issues of common concern and is chaired by California’s Insurance Commissioner Dave Jones.
“Climate risk fits squarely into the prudential mandate of insurance supervisors. Insurers should be asked to consider and address climate related risks in their writing of insurance and their investment of their financial reserves,” said Jones. “In Kuala Lumpur, the SIF made great progress in sharing the best practices of insurance regulators and developing guidance for insurance regulators regarding climate risk, as well as promoting sustainable insurance more broadly.” Regulators presented how they were approaching climate risks, with a focus on raising awareness in the sector, driving better disclosure from insurance companies and incorporating climate factors into routine tools such as stress tests.
They reviewed the first draft of a document that sets out why climate change is a material issue for supervisors and presents case studies of supervisor practice from across the world. This paper, to be released in 2018, will lay the groundwork for the development of practical tools and training materials for supervisors to encourage improvements in the ways insurance firms consider and disclose information about climate risks.
“Climate change is not a stand-alone risk and has to be embedded in the core prudential framework,” said Geoff Summerhayes, Board Member of the Australian Prudential Regulatory Authority (APRA). “This is a common challenge; within the SIF we benefit from learning from our peers in other jurisdictions who are addressing this pressing and complex issue.” Insurance supervisors are also part of a growing effort to promote sustainable finance.
“Sustainable insurance strategies are designed to respond to risk, but also mobilize capital for green investment and deepening financial inclusion,” said Siham Ramli, Director of Communications and International Relations for the Moroccan Supervisory Authority of Insurance and Social Welfare (ACAPS). In partnership with UN Environment and the Moroccan Federation of Insurance and Reinsurance Companies (FMSAR), Morocco will host its first Sustainable Insurance Day on 6th December.
The SIF was held alongside the annual meeting of the International Association of Insurance Supervisors (IAIS). The SIF works closely with the IAIS to spread good practice. “I fully support the SIF and hope it grows from strength to strength as a focused source of expertise on sustainability issues which we can share with our wider community of supervisors worldwide,” said Jonathan Dixon, the incoming Secretary General of the IAIS.
UN Environment provides the secretariat for the SIF and Nick Robins, co-director of UN Environment’s Financial Inquiry said, “The SIF is gaining real momentum. In July, the Forum issued a statement of support for the recommendations of the Task Force on Climate-related financial disclosures (TCFD). It’s now building on this through the guidance document on climate risk and work on sustainable insurance roadmaps.”
The Forum also heard from a wide range of insurance sector experts from Aviva, DLA Piper, the Insurance Council of Australia, Moody’s, the National Reinsurance Corporation of the Philippines, PeakRe and RAM Ratings.
“In the face of punishing extreme events and huge needs for financial inclusion, sustainable insurance is a must for the Philippines,” said Augusto Hidalgo, President of the National Reinsurance Corporation of the Philippines. “Supervisors can play a key role alongside policymakers, the private sector and civil society to make Disaster Risk Finance and Insurance a reality.”