EIOPA published a discussion paper that highlights challenges associated with the current non-life underwriting practices and options to ensure the availability and affordability of insurance products, in the context of climate change. The discussion paper is built on work stemming from the 2019 Opinion on sustainability within Solvency II and is part of the overall sustainable finance agenda of EIOPA. The regulator is inviting comments on the discussion paper until February 26, 2021. EIOPA will consider the feedback received and finalize its report in the Spring of 2021.
The discussion paper aims at highlighting the challenges associated with short-term non-life contracts and annual re-pricing using past natural catastrophes events and the impact of climate change on the premium, affordability, and protection gap. The discussion paper also identifies how insurers could address the protection gap issues in the context of climate change and contribute to climate change mitigation and adaptation. EIOPA has, therefore, introduced the concept of Impact Underwriting. The discussion paper explains that insurers and reinsurers can contribute to climate adaptation and mitigation by incentivizing policyholders to mitigate insured risks via risk-based pricing and contractual terms and by considering, in their underwriting strategy, measures that contribute to climate change adaptation or mitigation. The paper also presents a number of concrete options to ensure availability and affordability of insurance in light of climate change, with the Annex providing a number of case studies chosen by the insurance associations.
Comment Due Date: February 26, 2021
Keywords: Europe, EU, Insurance, Climate Change Risk, Non-Life Underwriting, Sustainable Finance, Solvency II, Protection Gap, ESG, EIOPA
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous ArticleEC Welcomes Agreement on Changes to Securitization Rules in EU
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.