Climate risk

Climate change is widely recognised as a source of financial risk, having an impact on the resilience of individual insurers as well on financial stability. Insurers are exposed to both transition and physical risks through their underwriting and investment activities. Insurers can also be key agents in identifying, mitigating and managing climate risk and thereby contribute to a sustainable transition to net-zero.

Therefore, climate change is a key theme within the IAIS Strategic Plan. IAIS’ work on climate change spans across many of our activities, ranging from financial stability risk assessment, developing supervisory and supporting material and capacity building.

Financial stability

The Global Monitoring Exercise (GME) allows the IAIS to monitor and assess global insurance market trends and developments, such as climate change, and their potential impact on insurance markets and global financial stability.

In relation to climate change, the IAIS published a special topic edition of the Global Insurance Market Report (GIMAR) on the insurance sector’ investment exposures to climate-related risks in September 2021. This report provided the first quantitative global study on the impact of climate change on the insurance sector. To access the report, please go to the link at the bottom of this page.

As a follow-up, climate data elements were added to the GME this year. These elements will become a regular feature of the IAIS’ annual assessment of insurance sector risks and provide a global baseline of climate risk data for the insurance sector. The outcomes of this year’s analysis will be published as part of the regular GIMAR by the end of 2022. Early next year the IAIS will also consider whether to collect climate data directly from individual insurers.

Standard setting

Following a review of the IAIS supervisory material (including the ICPs and ComFrame) to assess whether there is a need for changes to the standards or the development of new supporting materials to address the risks from climate change, we have concluded that the ICPs are sufficiently broad to cover climate risks. However, the IAIS will make a limited number of changes to ICP guidance to make it even more explicit that insurance supervisors should require insurers to incorporate climate-related risks into their day-to-day operations, including in governance, enterprise risk management and disclosures.

Furthermore, as climate risk is a rapidly emerging risk and one where supervisors need to better understand how it drives existing risks, next year IAIS will consult on new supporting material to help its Members understand and supervise the risks.

Recent events

Related documents

Supervisory practices

The IAIS work in this area focuses on promoting a globally consistent supervisory response to climate change, and providing supervisors with the necessary tools to monitor, assess and address climate-related risks to the insurance sector. In recent years, together with the UN-convened Sustainable Insurance Forum (SIF), the IAIS has published several Papers to this end:

  • May 2021: Application Paper on the Supervision of Climate-related Risks in the Insurance Sector
  • February 2020: Issues Paper on the Implementation of the Recommendations of the FSB Taskforce on Climate-related Disclosures (TCFD)
  • July 2018: Issues Paper on Climate Change Risks to the Insurance Sector

These papers can be accessed at the bottom of this page.

Ongoing work in this area focuses on climate risk scenario analysis. The IAIS will take stock of existing practices and supervisory objectives for scenario analysis and assess the need for guidance on effective supervisory practices with respect to climate scenario analysis.  In particular, IAIS will consider whether there are options for addressing the burden of different requests on insurers.  If necessary, the IAIS will develop supporting material specific to the insurance sector.

Capacity building

The IAIS is proud to be one of the launching partners of the Climate Training Alliance (CTA), a dedicated online portal for training on climate risks for central banks and supervisors. The CTA is a collaboration between the Bank for International Settlements, the IAIS, the Central Banks and Supervisors Network for Greening the Financial System (NGFS) and the SIF and is coordinated under Climate Finance Adviser Mark Carney’s COP26 agenda. It allows easy access to climate risk trainings, including those based on IAIS supervisory and supporting material. IAIS members can access it here.

Partners

As noted above, the IAIS works closely with a number of partners in addressing the risks and opportunities from climate change. Since its inception in 2017, the SIF has been a key strategic partner.

The IAIS also collaborates with other international organisations and standard setting bodies on climate risk issues, including the Financial Stability Board (FSB) and the NGFS

  • The IAIS contributes to the FSB Roadmap for Addressing Financial Risks from Climate Change.  A progress report was published in July 2022.  
  • The IAIS became an observer of NGFS in 2019, to coordinate a global response to the financial risks from climate change.

Key documents