The Global Federation of Insurance Associations (GFIA) warns against a ‘disproportionate’ focus on climate risks in its response to a consultation by the International Association of Insurance Supervisors (IAIS) on the supervision of climate risks in the insurance sector.
GFIA is concerned about the proposed changes to the Insurance Core Principles (ICP) guidance and the supervisory material, “especially on the excessive focus on climate risk in corporate governance, remuneration, risk management against the spectrum of investment risks that insurers and supervisors must consider”.
“While many of the proposed changes made are merely amendments to the climate-related comments in the current ICP guidance, GFIA is concerned that the emphasis on climate-related changes may place disproportionate focus on climate risks, potentially overshadowing other critical investment, operational, and underwriting risks that can prove to be more dominant solvency concerns,” the organisation noted.
Adding that this focus has the potential to overshadow more material/dominant risks drivers that insurers face.
“Looking at climate change in isolation ignores other important factors that can have a larger impact over such a long-time horizon, such as economic development including increased asset values in exposed areas, socioeconomic factors such as urbanisation or population growth.”
Climate risk is a financial risk that needs to be properly assessed and managed, GFIA members are aware of this, however, the attention it receives should be proportionate to its potential severity, the organisation highlighted.
While the IAIS states that the potential effects of climate change should be considered through traditional risk categories, it puts a lot of emphasis on climate-related risks, as if it is a specific separate risk category.
GFIA also commented on the changes to external ratings, and it agrees that continued consideration should be given as to whether to adjust them for internal management purposes.
At the same time, it noted that the method of reflecting climate-related risks in credit risk ratings comes with difficulty, and in practice it is very challenging for insurers.
This is mainly because they have limited information to analyse, according to the organisation. Therefore, GFIA believes that rating agencies should disclose the results of their analysis.
