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Monte Carlo 2022

Insurers feel climate heat from supervisors

Fire fighting helicopter carry water bucket to extinguish the forest fire

But are the burdens placed on businesses too unrealistic?

Supervisors worldwide are tightening their focus on climate-related financial risks, spelling more compliance work for insurers. But the industry is pushing back.

The Financial Stability Board (FSB) published its roadmap to address climate risks in July 2021, setting out a comprehensive and coordinated plan including steps and indicative timeframes. It was endorsed by G20 finance ministers and central bank governors and, subsequently, by G20 leaders at the Rome summit.

This summer, the FSB reported strong progress among supervisors in extending the use of climate-scenario analysis and stress-testing exercises.

But the industry lobby group Insurance Europe is calling for supervisory and regulatory approaches to climate-related risk “that reflect the realities of insurance business”.

In response to an FSB consultation, it states that there is no evidence to prove insurers are particularly vulnerable to system-wide impacts from climate change.

“Systemic risk emanating from climate change is neither faced nor transmitted by insurers: rather, it is faced by society as a whole,” Insurance Europe says.

The FSB, standard setters and supervisors should take into account the developments in reporting and availability of consistent climate-related data from the real economy and avoid repetitions and inconsistencies with existing or upcoming initiatives, according to Insurance Europe.

“Furthermore, a truly global risk like climate change demands a globally coordinated approach,” the industry lobby group adds.

Discussing the use of tools such as stress tests, “which are still exploratory in nature”, Insurance Europe says it is important to avoid false accuracy, overcomplication and granularity by focusing on materiality to avoid placing excessive burdens on insurers.

“It is too early to develop new tools for the insurance sector other than continuing the development of monitoring tools, such as climate stress tests,” it says.

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