Climate risk
Climate change is 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.
As a follow-up, climate data elements were added to the GME in 2022. These elements have 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 the analysis were published as part of the regular GIMAR by the end of 2022. To access these reports, please go to bottom of this page.
Standard setting
The IAIS is closely monitoring developments in global climate change mitigation efforts, climate science and how supervisory practices to manage climate-related risks have evolved. In 2022, the IAIS performed a gap analysis of existing IAIS supervisory material to assess how climate risk is already captured and to identify possible further work in terms of standard-setting and/or providing further guidance on supervisory practices. In consideration of the gap analysis outcome, the IAIS intends to publicly consult on limited changes to guidance related to various ICPs and to develop supporting material in several consultations over the next 18 months.
The first consultation, published in March 2023, outlines proposed changes to the ICP Introduction, which positions climate risk within the global framework for insurance supervision. Additionally, the IAIS discusses whether it is necessary to make changes to the existing supporting material related to governance, risk management and internal controls (ICP 7 and 8). Finally, the consultation includes questions seeking stakeholder feedback on the overall climate-related work as it relates to supervisory guidance.
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 previous 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 is developing supporting material on effective supervisory practices with respect to climate scenario analysis which will build on the information published in our 2021 Application Paper.
Recent events and Upcoming events
- 10 November 2022, Annual Conference panel on climate risk
Related
documents
- April 2023 – IAIS Public statement on the role of supervisors in addressing natcat protection gaps
- Oct 2021 – IAIS Public statement on climate
- July 2021 – Launch of the Climate Training Alliance
- Dec 2020 – IAIS Environmental Policy
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 Sustainable Insurance Forum (SIF). It allows easy access to climate risk trainings, including those based on IAIS supervisory and supporting material. IAIS members can access it here or find more information, including on registration, here.
Partners
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.