Life Insurers: Climate Risk Modeling in the Risk Assessment Process

Climate risk affects many industries in different and increasingly complex ways. There is a lot of modeling uncertainty, both scientific and socio-economic. This high uncertainty, and potential materiality has resulted in stakeholder and regulator pressure to understand the impacts on business, consumers, and society. Many bodies have begun to address climate risk and other related challenges, from local regulators to international organizations.

The Own Risk and Solvency Assessment (ORSA) encourages insurers to understand the risks involved with running their business, from both a qualitative and a quantitative perspective. Unlike other regulatory requirements, the ORSA is not published. Therefore insurers are struggling to understand how the rest of the market is planning to include climate risk in their process. Although it is accepted that climate risk will have to be included in the ORSA, and its equivalents, it is unclear how much of it will be qualitative, how much quantitative, and the timelines for embedding the risk. One of the aims of this survey was to offer some clarity.