The European Insurance and Occupational Pensions Authority (EIOPA) published a supervisory statement on assessment and practical implementation of value for money of unit-linked insurance products under the product oversight and governance requirements. Also published were the focus areas of regulatory proportionality for insurers, within the work program for the coming year, and an announcement on the sustainable finance activities planned for the coming three years. Finally, EIOPA also launched the voluntary Pilot Exercise to better understand how insurers integrate climate-related adaptation measures in non-life insurance products and to assess the appropriateness of the corresponding prudential treatment of these insurance products; the pilot exercise closes on February 04, 2022 and interviews to collect further insights are slated for March 2022.
EIOPA announced the three year plan that will help to integrate sustainable finance across all areas of its work. From 2022 to 2024, EIOPA defined the following key areas of activity:
- Integration of sustainability risks in the prudential framework of insurers and pension funds by developing proposals for supervisory reporting of climate risks in Solvency II, analyzing prudential treatment under Solvency II of assets, and/or activities associated with environmental and/or social objectives. EIOPA also plans to report on underwriting practices and prudential treatment of the integration of climate change-related adaptation measures in non-life insurance products.
- Consolidation of the macro/micro-prudential risk assessment of sustainability risks in tools and methodologies by conducting analysis on physical risk following earlier analysis on transition risk, and developing methodological principles of climate change insurance stress testing.
- Promotion of sustainability disclosures and a sustainable conduct of business framework by providing guidance on disclosures under the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation as well on the application of the sustainability-related provisions in the insurance sales process and advice to the European Commission on measures to address greenwashing.
- Support supervision of sustainability risks and supervisory convergence in the European Union by issuing application guidance and conducting a pilot exercise on the supervision of the use of climate change risk scenarios in Own Risk and Solvency Assessment (ORSA), conducting cost and past performance analysis of sustainability products, and providing guidance on the supervision of environmental, social, and governance (ESG) conduct risks, including greenwashing.
- Addressing protection gaps by completing the dashboard on insurance protection gaps for natural catastrophes as well as analyzing consumers behavior and contractual terms and conditions with regard to natural catastrophe insurance coverage.
- Promotion of the use of open-source modeling and data in relation to climate change risks by analyzing opportunities for the use of the open-source modeling tools for natural catastrophes and developing ways to improve the collection of uniform and comprehensive insured loss data.
- Contribution to international convergence for the assessment and management of sustainability risks through international dialogs and fora on sustainability
EIOPA is also launched a pilot exercise on climate change adaptation in non-life underwriting and is inviting interested insurers to join. The exercise will help EIOPA to assess the appropriateness of the prudential treatment of climate-related adaptation measures in the technical provisions and solvency capital requirements for non-life underwriting risks under Solvency II. Furthermore, this will contribute to a better understanding of how insurers integrate climate-related adaptation measures in non-life insurance products. Sustainable finance remains one of the priorities of EIOPA. Nevertheless, the focus of work will continue to be evidence-based and shall help insurers and pension funds as managers of large parts of society’s risks and important long-term investors, to strengthen their roles in mitigating and adapting to the risks posed by climate change. Overall, this should support the transition to a more sustainable and resilient economy.
- Supervisory Statement
- Proportionality in Work Program for 2022
- Sustainable Finance Priorities
- Pilot Exercise on Climate Change Adaptation
Keywords: Europe, EU, Insurance, Reinsurance, Solvency II, SCR, Solvency Capital Requirement, ESG, Sustainable Finance, Climate Change Risk, Stress Testing, Scenario Analysis, SFDR, Taxonomy Regulation, Greenwashing, ORSA, Open Source Modelling, Catastrophe Risk, EIOPA
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