This first report by the Geneva Association Task Force on Climate Change Risk Assessment for the Insurance Industry offers 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.
The findings lead to the following preliminary conclusions for re/insurance companies and other stakeholders (e.g. regulators, rating agencies):
- The development of methodologies and tools that would produce meaningful and decision-useful information is a work in progress.
- The design of a climate risk assessment approach must consider the potential for the inherent uncertainties associated with the transitioning related to public policy, technology, markets, and consumer behaviour to undermine the credibility and decision usefulness of data.
- A combination of qualitative and quantitative approaches for assessing climate change risk over the various time horizons is required.
- Climate change risks vary across the insurance industry and by line of business.
- Cross-company engagement also allows for leveraging internal expertise and enhancing company-wide understanding of the potential severity, interlinkages and implications of climate change risk.
- Re/insurers, as risk managers and investors, play an important role in understanding the risks associated with climate change and educating stakeholders (e.g. customers, policymakers, regulators) on how climate change will impact society.