Analysts at Allianz have warned that actions to address climate change pose significant operational and compliance challenges for re/insurance companies, with growing scrutiny for those that over-promise or lag behind.
Although the pandemic caused re/insurers and governments alike to shift their priorities over 2020, Allianz believes that the issue will move back towards the top of the global agenda this year.
The past decade has seen marked progress on international co-operation and commitments to address climate change and greenhouse gas emissions, and these commitments are now increasingly materializing as government policy.
The European Union is seen as a frontrunner when it comes to climate change regulation, and Allianz points to a number of key policies that are in development or due for implementation in Europe that could have significant ramifications for re/insurers operating in this market.
“We are now at a tipping point in Europe with the application of first regulatory requirements such as sustainable finance disclosures and the taxonomy for sustainable economic activities kicking in,” said Isabel Naumann, responsible for Sustainable Finance Regulation at Group Regulatory and Public Affairs at Allianz SE.
“However, we are just at the beginning of the journey – the integration of sustainability into other areas, such as corporate governance or supply and value chains will follow.”
While Allianz views physical loss impact is seen as the most significant exposure from climate change, regulatory/legal risk is a rising concern, with developments expected to impact almost all sectors.
“Businesses are entering a period of huge policy and regulatory change. Companies will face new regulations and standards in the coming years, as well as reviews of existing rules and legislations with sustainability in mind,” Naumann explained.
Looking ahead, Allianz recommends that re/insurers “keep a finger on the pulse” of the climate change debate to anticipate future policy and regulatory developments, rather than trying to influence debate themselves.
“This is an issue companies need to keep on top of and to keep in-touch with their peers, customers and suppliers about,” said Chris Bonnet, Head of Environmental, Social, and Governance (ESG) Business Services at AGCS.
“The boundaries of what is socially acceptable in terms of carbon-based business models are shifting, and society will want to understand that businesses are contributing to the solution to climate change, rather than being the cause of the problem.”
“The EU’s climate change and wider sustainability agenda will not be postponed. Companies should start thinking about upcoming requirements and changes in policy and regulation now,” added Naumann.
“From a risk management perspective, companies need to consider potential climate change-related liabilities alongside physical and transition risks. By engaging early, companies will be able to prepare for what is around the corner.”