Geneva Association highlights climate risk mitigation

The insurance industry needs to consider both risk mitigation actions and engagement with investors with regard to tackling climate change, according to Michele Lacroix, head of Group Investment Risk & Sustainability at Scor.

Lacroix was speaking as part of an online discussion panel, Climate Change Risk Assessment for the Insurance Industry, hosted by the Geneva Association.

Risk mitigation actions include exiting from high carbon intensive sectors and becoming best in class, while engagement with investors could entail the fostering of speedier decarbonisation as well as relocation efforts.

Lacroix stressed that it is important in this context to consider the physical risk for the asset side both directly through buildings and infrastructure, and also indirectly through investment in companies via debt and equity.

She also added that it is important to consider both internal and industry expertise.

To date, Lacroix noted, there has been a stronger focus on transition risk due to a shorter time horizon, as well as existing expertise in credit risk.

The panel was discussing key points from a first report by the Geneva Association Task Force on Climate Change Risk Assessment for the Insurance Industry, offering a decision-making framework for climate risk assessment and scenario analysis for P&C and life re/insurers.

The analysis considers all physical and transition climate change risks for the liability and asset sides of the balance sheet, by line of business and over distinct time horizons and serves as a foundation for the Task Force’s work to drive future developments in this space.

“Tragically, the effects of climate change are becoming more palpable and harder to ignore,” said Jad Ariss, managing director of the Geneva Association.

“Persistently warming temperatures and sea-level rise. Compromised ocean ecosystems. Gigantic wildfires in Australia and California and a record hurricane season in the Atlantic. The societal impacts are worldwide, and individuals and institutions must fully commit now to confronting the climate crisis.”

“For their part, insurers are already contributing significantly to the transition to a low- carbon economy. On the liabilities side, more insurers are factoring climate risk into their underwriting decisions. On the asset side, many companies have investment strategies that support climate mitigation. An important next step is to develop and hone climate risk assessment methodologies and tools.”

He added that this first report of the task force sets out a climate risk assessment framework for both P&C and life insurers, urging companies to start with a simplified approach:

“They should focus on two time horizons – short term (2020–2030) and long term (2030– 2050) – and the potential implications of physical and transition risks for both sides of the balance sheet. “

“As underwriters, insurers are at the forefront of understanding and preventing risk. As asset managers, they can steer massive amounts of capital to climate-resilient investments. Insurers are obvious, strong leaders on global climate action, and our industry-led initiative reinforces that they are willing and eager to forge ahead.”

The full report can be accessed here.