The UN Environment’s Finance Initiative (UNEP FI) has announced a partnership with a group of 16 large, global insurers and reinsurers, to develop a new generation of risk assessment tools that enable the risk transfer industry to better understand the impacts of climate change on their business.
The 16 companies represent around 10% of global insurance premiums and $5 trillion in assets under management, and the pilot group will be tasked with developing analytical tools that they will use to pioneer insurance industry risk disclosures that fall in line with the guidelines and recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).
The UNEP FI states that this will require member insurers and reinsurers to leverage the latest climate science, which includes the most advanced, and forward-looking climate scenarios that are out there.
The member re/insurers includes: Allianz, AXA, IAG, Intact Financial Corporation, Länsförsäkringar Sak, MAPFRE, MS&AD, Munich Re, NN Group, QBE, Sompo Japan Nipponkoa, Storebrand, Swiss Re, TD Insurance, The Co-operators, and Tokio Marine & Nichido.
UN Environment Chief, Erik Solheim, commented: “For generations, the insurance industry has served as society’s early warning system and risk manager by understanding, reducing, pricing and carrying risk. Its message now is loud and clear: climate change risk is intensifying and is a serious threat to the insurability of communities and economies around the world.
“An uninsurable world is a price that society could not afford. This is why UN Environment is working with leading insurers to understand and reduce risk, to seize unprecedented business opportunities in climate action, and to ensure an insurable, resilient and sustainable world.”
The UNEP FI notes the recent report of the Intergovernmental Panel on Climate Change (IPCC), which highlights the rapid and urgent actions needed to limit global warming to 1.5°C.
According to the UNEP FI, the pilot insurance group will develop tools and indicators that they will pilot, which will incorporate the latest scenario analysis to better assess and understand climate-related physical and transition risks in insurance portfolios.
The announcement on the partnership also explains that while insurers and reinsurers are also major investors, this initiative will focus on the assessment of climate risks in their core insurance portfolios and products.
Michael Bloomberg, Chair of the Task Force and UN Special Envoy for Climate Action, said: “The more insurers understand climate risks facing the economy, the more they can make prudent decisions in managing risk and serving their clients, and the more efficient and stable our markets will become.
“The pioneering work of this group will pave the way for greater climate risk transparency and climate action by the global insurance industry, and it’s great to see that it’s consistent with our Task Force’s recommendations.”
Oliver Bate, Chairman of the Board of Management, Allianz, added: “Climate change and economic instability are amongst the biggest challenges we will face in the coming decades. We have no time to waste. It’s not a question of getting the wheels turning, but rather how fast we can drive the change.”
IAG’s Managing Director & Chief Executive Officer (CEO), Peter Harmer, also commented: “The insurance industry has long understood the risk of climate change on our communities and customers, and it is vital that the financial sector works collectively to share our knowledge and create a framework for transparent and sustainable operations and reporting. We look forward to working with our global industry peers in the UNEP FI PSI pilot, and contributing to the development of a set of standards to give investors and customers the ability to make informed decisions in the context of what IAG and our industry are doing to help combat climate change.”
Christian Mumenthaler, CEO of reinsurer Swiss Re, said: “Swiss Re has a long-standing commitment to being a responsible company. We first identified the potential mid- to long-term impact of climate change on our business — and on society in general — some 30 years ago. In response, we declared it a priority issue and introduced a comprehensive climate change strategy.
“Supporting the TFCD and its agenda is another highly relevant step and contributes to our vision of making the world more resilient. We look forward to enabling sustainable progress in collaboration with the UNEP, others in our industry, and public and private partners from around the world.”
Toshifumi Kitazawa, CEO, Tokio Marine & Nichido Fire Insurance Co. Ltd., added: “In the age of transition to a low-carbon society, Tokio Marine fully supports the United Nations Environment Programme Finance Initiative and will contribute to the creation of effective climate-related disclosure methodologies through proactively participating in the discussion of TCFD Insurer Pilot Working Group.”