While the insurance industry has made progress on the issue of climate change and related risks, it’s vital that the sector, alongside regulators, further advance their thinking and take action, according to Anna Sweeney, Executive Director, Insurance Supervision Division, Bank of England (BoE).
Although somewhat overshadowed in recent months by the ongoing COVID-19 pandemic, the impacts and risks from climate change will be felt for years to come, and remains a significant challenge for the risk transfer industry.
Both climate change and pandemic risks are systemic in nature, but while the insurance and reinsurance markets have shown a level of resilience to the coronavirus crisis, the longer-term threat of climate change and needed adaptation is proving to be more of a challenge.
This issue was addressed recently by Sweeney of the BoE, who in a recent speech as part of the Moody’s Insurance Summit Webinar, explored the management of climate risk in the insurance sector.
“Insurance companies play a critical role in supporting businesses manage climate-related risks and provide critical long-term finance, such as infrastructure, that support economic growth,” said Sweeney. “Consequently, the resilience and the ability to manage climate-related risks within the insurance industry is of significant importance.”
According to research by the Boston Consulting Group, insurers boast global assets under management of more than $13 trillion, and premiums of $6.3 trillion. In light of this, Sweeney highlights the “substantial and unique role” insurers have to play in helping to protect society against climate change.
“Insurers and regulators have a shared responsibility to continue to advance their thinking and take action. The most effective response will be one in which everyone plays their part,” said Sweeney.
Climate change is viewed as a real challenge for the risk transfer industry, but it also represents a huge opportunity to develop effective and affordable solutions that look to tackle the issue. And as noted by Sweeney, those companies that can improve their understanding of climate change and price the exposures in the right way, stand to benefit from greater business opportunity.