GFIA warns of excessive focus on climate risk in IAIS consultation
The Global Federation of Insurance Associations (GFIA) has warned of an “excessive focus on climate risk in corporate governance, remuneration and risk management” in comparison to the wide range of other risks facing the industry in its response to a consultation by the International Association of Insurance Supervisors (IAIS) on the supervision of climate risks in the insurance sector.
The GFIA said the insurance industry is overtly aware of the impact climate change is having on its activities across the globe. But in its response to the consultation, it raised concerns about the proposed changes to the Insurance Core Principles (ICP) guidance and the supervisory material.
“The disproportionate focus on climate risks, for example, could potentially overshadow other critical investment, operational, and underwriting risks that can prove to be more dominant solvency concerns,” said the GFIA.
It continued: “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. This focus could potentially overshadow more material/dominant risks drivers that insurers face.”
It added: “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. Members of GFIA are aware that climate is a financial risk that needs to be properly assessed and managed. However, the attention paid to climate risk should be proportionate to its potential severity.”
Climate change is a key strategic theme for the IAIS as it is a source of financial risk, which impacts the resilience of individual insurers and could lead to financial stability risk, said the IAIS. “An adequate response from supervisors to climate-related risks will support the objectives of insurance supervision of protecting policyholders, contributing to financial stability and promoting the maintenance of a fair, safe and stable insurance market,” it said.
The IAIS said its consultation on climate risk in the insurance sector includes proposed changes in selected ICP guidance and supporting material to reflect climate risk. It covers issues related to corporate governance, risk management and internal controls, valuation of assets and liabilities for solvency purposes, investment activities of insurers, and insurers’ enterprise risk management framework.
