Insurance Europe welcomes the IAIS work on climate change and its endorsement of an initiative to boost transparency about sustainability risks by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), the European insurance body said in a statement issued on Wednesday.
Insurance Europe said that European insurers support increased transparency around sustainable investments and sustainability risks, provided the provision of information is balanced and efficient. Therefore, insurers support disclosures that help consumers and investors to make informed financial decisions aligned with their objectives.
In particular, European insurers support the fact that:
The IAIS is considering the implementation of TCFD recommendations in various Insurance Core Principles (ICPs). Explicit references to sustainability in the ICPs will help strengthen the integration of material sustainability risks in insurers’ operations in a consistent and efficient manner. In addition, this could be an effective way of ensuring minimum standards globally.
The IAIS is taking a coordinated approach between jurisdictions, reflective of the cross-border nature of climate-related risks. Coherent policymaking between jurisdictions will avoid duplicative or contradictory standards.
Supervisors encourage insurers to produce robust climate-related disclosures and consider financially material climate-related risks thoroughly, provided feasibility and proportionality considerations are taken into account. In this respect, the use of qualitative scenario analysis can be a useful way to measure climate risks.
Insurance Europe also notes that:
The implementation of TCFD recommendations through ICPs should allow sufficient flexibility for insurers to decide on the best way to deal with climate risks, in line with each company’s specific characteristics and risk profile. Supervisors need to carefully assess the appropriateness of TCFD recommendations to the insurance sector and adapt them as needed if they should serve as a de facto standard.
Currently, quality data to accomplish the proposed disclosures is lacking, which has made it difficult for insurers to make as much progress as they would like on public disclosures and on communicating to relevant users. Regulatory support is needed to enhance the quantity and quality of ESG data available to insurers.
Supervisors should investigate whether there are disincentives in the prudential frameworks, such as unjustified and excessive capital requirements, to support insurers’ actions to mitigate climate risk. Insurers should not be undermined in their efforts by the regulations themselves.
The TCFD Recommendations help inform market and supervisory practice related to climate risk disclosures. Put in place by the G20’s Financial Stability Board, the TCFD, composed of 32 international experts, was mandated to develop voluntary, consistent climate-related financial risk disclosures. The TCFD presented its final recommendations in June 2017.
In June 2018, the SIF and the IAIS released a joint Issues Paper on Climate Change Risks to the Insurance Sector. As a follow-up to the TCFD Recommendations in establishing a framework for climate risk-related disclosures for the insurance sector, the SIF and IAIS developed an Issues Paper on the subject and invited feedback on it by 5 February 2020. The SIF is a network of leading insurance supervisors and regulators seeking to strengthen their understanding of and responses to sustainability issues.
Insurance Europe is the European insurance and reinsurance federation with 37 member bodies which are national insurance associations.