The UN Environment's Finance Initiative (UNEP FI) has announced a partnership with 16 of the world's largest insurers to develop a new generation of risk assessment tools which aim to enable the insurance industry to better understand the impacts of climate change on their business, the UNEP said in a statement last week.
The leading insurers that will work together with the UN are all signatories to UNEP FI’s Principles for Sustainable Insurance (PSI) Principles for Sustainable Insurance (PSI), a global best-practice sustainability framework and the largest collaborative initiative between the UN and the insurance industry.
This ‘Insurer Group’ includes: Allianz (Germany), AXA (France), IAG (Australia), Intact Financial Corporation (Canada), Länsförsäkringar Sak (Sweden), MAPFRE (Spain), MS&AD (Japan), Munich Re (Germany), NN Group (Netherlands), QBE (Australia), Sompo Japan Nipponkoa Japan), Storebrand (Norway), Swiss Re (Switzerland), TD Insurance (Canada), The Co-operators (Canada), and Tokio Marine & Nichido (Japan).
The pilot group, which represent around 10% of world premium and US$5tn in assets under management, will develop analytical tools that they will use to pioneer insurance industry climate risk disclosures that are in line with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).
This will require them to make use of the latest climate science, including some of the most advanced, forward-looking climate scenarios available.
“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,” said UNEP chief Erik Solheim.
“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 recent report of the Intergovernmental Panel on Climate Change (IPCC) highlighted the rapid, far-reaching and unprecedented changes needed to limit global warming to 1.5°C. As rising temperatures accelerate sea level rise and catalyse extreme weather events, communities, businesses, cities and countries are facing new types and higher levels of risk.
The FSB’s TCFD’s final recommendations on climate-related financial disclosures by companies were submitted to the G20 in June 2017.
The tools and indicators that will be jointly developed and piloted by the Insurer Group will incorporate the latest scenario analysis to assess climate-related physical and transition risks in insurance portfolios, said UNEP
While insurers themselves are also major investors—with global assets under management of over $30tn—this initiative will focus on the assessment of climate risks in their core insurance portfolios and products.
"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,” said TCFD chair Michael Bloomberg and UN Special Envoy for climate action. “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."
Reliable information on insurers’ exposure to climate risks will strengthen the stability of the financial system, encourage more and better disclosures from client companies across sectors, and help boost insurance products and investments needed to transition to low-carbon, climate-resilient communities and economies.
The Insurer Group’s outputs aim to support key platforms and initiatives, including the UN Secretary-General’s Climate Summit in New York in September next year to drive ambitious climate action needed to achieve the goals of the Paris Agreement on Climate Change.