COP26 marked another resounding ringing of the global climate risk alarm bell, sounding louder and more desperate than ever. The echoes of its chimes will ripple around the globe for months and years to come. It ushers in with it a renewed drive an impetus for insurance climate risk reporting, as part of wider climate-related reporting and disclosure efforts for the financial services industry.
As the TCFD so succinctly put it: “Without reliable climate-related financial information, financial markets cannot price climate-related risks and opportunities correctly, and may potentially face a rocky transition to a low-carbon economy.”
Insurers are embracing the challenges of climate risk disclosure, according to the 2021 TCFD Climate-related Financial Disclosures Status Report. In its survey of eight sectors the TCFD found: “The insurance industry significantly increased its average level of disclosure by 11 percentage points between 2019 and 2020, and now leads all groups by at least 15 percentage points in disclosure of risk management processes.”
The challenges climate risk reporting
Climate risk managment entails an additional challenge for insurers, given that they are also carries of insurance climate risk; both in non-life catastrophe risk, but also in many tangential areas, such as life and health risk. Consider, for example, the implication for respiratory conditions for people who have lived in proximity of large-scale wildfires in the California or Australia.
These unique aspects are additional to the wider challenges of climate-related reporting experienced by all sectors. For example, the lack of standardisation and clearly defined and appropriate metrics to measure and report climate risk.
Insurance climate risk reporting – a Solvency II Déjà vu?
To explore the challenges of insurance climate risk reporting (and perhaps even draw on lessons from Solvency II) Solvency II Wire has teamed up with Royal London Asset Management to research and assess current industry best practices in insurance climate risk management and reporting.
The findings of the research will be published and discussed in a live webinar on 24 November 2021.
What gets measured gets done, goes the old cliché. Insurance climate risk reporting is no different. Measuring and reporting climate risk is one of the first, and more achievable steps towards managing climate risk.