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The Geneva Association (TGA), an international think tank for the insurance industry, has released its third report on climate change risk assessment for the industry. The report – Anchoring Climate Change Risk Assessment in Core Business Decisions in Insurance (2022) – features business use cases and new insights into regulatory priorities to offer reinsurers and insurers (re/insurers) guidance on implementing climate change risk assessment to produce decision-relevant information.
 
According to a statement sent to Financial Nigeria by TGA on Tuesday, its Task Force on Climate Change Risk Assessment found that since the publication of its first two reports in 2021 the context in which re/insurers are able to assess the impact of climate change-related risks and opportunities on their business models has further evolved.

“Developments in climate science, technology, policy, regulation and litigation have hastened the need to not only integrate climate change risk assessment in core business decision-making processes, but also consider physical, transition and litigation risks over different time horizons and their effect across both assets and liabilities,” the statement said.

TGA said its third and final report on climate change risk assessment presents comprehensive yet practical guidance to help the underwriters navigate their companies towards implementing more holistic assessment and forward-looking scenario analysis in their business models.

The new report delves into the strategies and tactics needed to move forward in an evolving risk landscape. As part of its highlights, the report received inputs from key regulatory and standard-setting bodies across jurisdictions, providing an updated perspective on regulatory priorities and essential questions for re/insurer boards and executive management. It provides a strategic framework for re/insurers on how to conduct the analysis, engage experts from relevant business functions, and mine and use consistent data and tools across the company. The report also offers three examples of business use cases: implications of physical risks on enterprise risk management in property and casualty (P&C); implications of physical and transition risks on investments (P&C and life insurance); and the interactions of physical and transition risks in life & health insurance.

The survey for the report asked regulatory questions linked to priority areas on “key functions” including governance, strategy, risk management, capital and liquidity management, and compliance and disclosure. For example, on governance, respondents were asked “How does the company consider climate change risks in its corporate governance frameworks and organisational structure?” and “Are climate change risks understood throughout the institution?”.

Other questions include whether a company has a strategic approach towards climate change risks; how a company perceives the insurability (affordability, accessibility, and relevance of insurance products) of certain risks in light of climate change; how the company’s balance sheet is exposed to the financial instability risks emanating from climate change; and how the company is communicating its climate change risk exposure.

The report offers four areas of strategic consideration for developing internal processes for climate change risks. These are board oversight and executive management buy-in for company-wide engagement and appropriate allocation of resources; coordination and execution of climate change risk assessment, through a company-wide mandate with clear accountability; design and utilisation of company-specific business use cases to frame climate change risk assessment; and well-defined, overarching questions relevant to the decision-making process of the board and C-suite.