No sector is more exposed to the harsh reality of climate change than insurers. Rising claims need to be backed by a solid set of assets that can sustainably support liabilities in the years to come. Therefore, the need to make investments more sustainable and mitigate climate risk in insurer’s portfolios is growing, particularly as regulators around the world take a tougher stance.
With these challenges, however, there are also great opportunities for the insurance industry to benefit from an inevitable and promising structural change in the investment and underwriting business. As the world sets goals for net zero emissions, huge opportunities are appearing in investment arenas such as renewable energy and decarbonization technology.
Meanwhile, regulation is increasing and society’s expectations for the financial industry to act on global warming are growing. So what are insurers to do?
In this first article in our ‘Climate change risk management for insurers’ series, we examine the role of insurance regulators in providing guidance on implementing climate-related risks. This is particularly relevant in the area of climate risk stress testing, where a range of potential scenarios are considered in order to assess possible financial impact on insurers.
A regional overview provides us with the latest developments in climate risk management across Europe and the Asia-Pacific. Finally, we share our thoughts on the impact of climate risk on insurance capital requirements, by showing how Robeco incorporates climate risk stress testing scenarios into its own solvency assessments.