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    EIOPA Sets Out Climate Scenario Guidance and Digital Strategy

    The European Insurance and Occupational Pensions Authority (EIOPA) published its forward-looking digital transformation strategy and launched a consultation on the application guidance on running climate change materiality assessment and using climate change scenarios in the Own Risk and Solvency Assessment (ORSA). The consultation on this application guidance ends on February 10, 2022. The final application guidance is expected in June 2022, post integration of the feedback from consultation and after conclusion of the pilot exercise that starts in March 2022.

    The application guidance for the climate change scenarios provides a detailed and practical basis for implementing the sustainable finance ambitions in practice. Concrete case studies for materiality assessment of climate change scenarios included in the consultation should also contribute to lowering implementation costs for insurance undertakings, in particular small and mid-size ones, and improve the comparability of reported information. The insurance and reinsurance industry will be impacted by climate change-related physical and transition risks. Therefore, EIOPA believes it is important to encourage a forward-looking management of these risks to ensure the solvency and viability of the industry. The consultation gives general insights in the ORSA where undertakings have the possibility to address climate change risks and provides examples using both dummy non-life and life companies, which will help to design the steps for the materiality assessment and to run climate change scenarios. This consultation offers guidance on the application in the ORSA, taking into account the size, nature, and complexity of their climate change risk exposures. The application guidance is a follow-up from EIOPA’s Opinion on the supervision of the use of climate change risk scenarios in ORSA, as published in April 2021. It will support the preparation of climate change scenario analyses by presenting several concrete approaches to climate change reporting.

    The digital transformation strategy of EIOPA aims to ensure a systematic, balanced, and holistic approach to the technological transformation of the European insurance and pensions markets and their supervision that is currently underway. In recent years EIOPA has increasingly focused resources on digitalization topics and has published guidance and consultations on topics such as artificial intelligence, cloud computing, cyber-security, open insurance, and blockchain. In parallel to these activities, the European Commission also recently launched an ambitious digital agenda. EIOPA’s digital transformation strategy, alongside the other published forward-looking tools such as the European Union-wide strategic supervisory priorities, the Strategy on Cyber Underwriting, the Suptech Strategy, aims to support national competent authorities and the pensions and insurance sectors in facing the digital transformation through a technologically-neutral, future-proof, ethical, and secure approach to financial innovation and digitalization. EIOPA has identified the following five key long-term priorities to guide its contributions on digitalization topics:

    • Leveraging on the development of a sound European data ecosystem by collaborating with the European Commission on the development of financial data spaces, including in areas such as sustainable finance and pension data tracking systems, and on the linked developments such as those related to open insurance.
    • Supporting Artificial Intelligence and promoting financial inclusion by seeking to ensure the use of trustworthy artificial intelligence systems and ensuring financial inclusion.
    • Ensuring a forward-looking approach to financial stability and resilience by assessing the prudential framework in view of the digital transformation and seeking to ensure its continued financial soundness, while further promoting greater supervisory convergence in the appropriate assessment of digital activities and risks.
    • Realizing the benefits of the European single market by continuing to support the development of the single market in times of transformation, facilitating cross-border and cross-sector cooperation, supporting the development of innovation facilitators, and addressing the opportunities and challenges of fragmented value chains and the platform economy.
    • Enhancing the supervisory capabilities of EIOPA and national competent authorities and seeking to become digital, user-focused, and data-driven organizations, to meet the strategic objectives effectively and efficiently.

     

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    Comment Due Date: February 10, 2022

    Keywords: Europe, EU, Insurance, Solvency II, ESG, Climate Change Risk, Stress Testing, Scenario Analysis, ORSA, Open Insurance, Regtech, Suptech, Digital Transformation Strategy, Sustainable Finance, EIOPA

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