During the publication of the survey of insurance firms’ exposures to and preparedness for emerging risks (May 2021), the Central Bank noted with while 84% of firms have management structures in place for oversight of climate risks less than half of firms have a climate strategy, plan, or policy in place. The Central Bank has stated that its expectation is that “firms identify the risks and opportunities they face over the longer term, and adjust their strategies and business models accordingly”. To supervise this, the Central Bank has recently established a specific climate change unit and climate change considerations are being embedded into day to day supervisory activities.
Also in May the International Association of Insurance Supervisors (IAIS), in partnership with the Sustainable Insurance Forum (SIF), published their Application Paper on the Supervision of Climate related Risks in the Insurance Sector. The Paper provides insurance supervisors with tools to further strengthen their efforts in assessing and addressing risks to the insurance sector from climate change, as well as recommendations and examples of good practice. The recommendations cover areas such as:
- The role of the supervisor
- Corporate governance
- Risk management
- Investment policy
In 2019, EIOPA (the European Insurance and Occupational Pensions Authority) published their Opinion on the integration of Sustainability in Solvency II. Following on from this as part of the review of Solvency II EIOPA have stated that undertakings should integrate sustainability in their risk management and ORSA. EIOPA have outlined that the following should be considered by supervisors when assessing climate risk scenarios:
- Time frame (consideration should be given to short term and long term risks)
- Breath of climate risks
- Range of scenarios used
- Reporting on the outcomes and conclusions drawn from the scenarios.
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Climate change is resulting in more frequent and severe weather events that will lead to higher losses for non-life insurers. Accordingly, EIOPA has recommended that the recalibration of the standard formula charge for natural catastrophes should take into account future developments as well as the impact of climate change. The recalibration exercise will take place in 2022, following the collection of data from supervisory authorities. For Ireland currently the only peril included is windstorms; however, EIOPA has indicated that flood risk may also be material and could be added to the Solvency II standard formula charge following the recalibration exercise.