The IAIS published a public consultation on its approach to climate risk. The consultation looks at how the guidance could be explain how the Insurance Core Principles can apply to the supervision of climate risk.
Finance Watch supports the IAIS work to investigate climate risk and if changes to its existing guidance are needed. Existing supervisory practices and prudential regulation need to evolve to deal with climate risks. These risks are forward-looking, non-linear and cannot be captured or quantified using historical data in line with existing approaches.
Given the nature of these risks, the IAIS needs to raise the current ambition of adding to its existing guidance and instead amend the Insurance Core Principles (ICPs). This can ensure that they play a key role in consistent supervision of climate risk.
In the response, Finance Watch calls for a precautionary approach to be embedded in the ICPs. This should extend to capital requirements and also to linking transition planning to the Own Risk and Solvency Assessment done by insurers. There is a key opportunity for assessments of insurer’s exposure to sectors and industries impacted by the transition to meet climate targets to be used to understand insurers’ transition risk exposure.