The impact of climate change on the UK insurance sector

This report’s objective is to provide a framework for considering the risks arising from climate change through the lens of the the Bank of England’s Prudential Regulation Authority's statutory objectives in relation to insurers – ie the safety and soundness of firms and appropriate protection of policyholders. The report therefore takes the form of an initial risk assessment. It explores possible responses to the risks identified but is not intended to provide a policy prescription. The report also discusses climate change-related opportunities.

Based on survey responses from thirty PRA regulated insurance companies, four roundtable discussions with representatives from the insurance industry and discussions with stakeholders knowledgeable about the insurance industry, the report identifies three climate “risk factors” to the insurance industry. According to the study the industry faces challenges not only from physical climate risks but also from ‘transition risks’ and ‘liability risks’. The report notes that while there remains considerable uncertainty over the exact scale of transition and liability risks, physical climate risks represent a clear and present threat to the industry. These risks arise directly from climate-driven extreme events like storms and floods. Such events can cause damage to property and disruption to global supply chains.