Measuring climate risks is a challenge for insurance, experts said at a conference on sustainable finance organised by the European Insurance and Occupational Pensions Authority (EIOPA) on Wednesday 7 December.
Discussing climate change and financial stability, the panellists argued for the importance of modifying risk tests, shock scenarios and their analysis.
Vicky Saporta, Chair of the Executive Committee of the International Association of Insurance Supervisors (IAIS) and Executive Director of the Prudential Authority at the Bank of England, explained that the stress tests currently being carried out only take into account the short term.
Since shock scenarios and their analysis are carried out over medium-term horizons, they are now increasingly used. “Working on historical data is less relevant, as we are dealing with a new phenomenon”, she stressed, adding that risk management must be forward-looking.
The difficulty is also that insurers are relying on what governments will put in place to combat climate change.
“The ultimate consequences of these risks when they crystallise can have an impact on policyholder protection”, she said.
Martin Spolc, Head of Unit for Sustainable Finance at the European Commission’s Directorate General for Financial Stability and Capital Markets (DG FISMA), stressed the “need to improve the identification, measurement and management of risks at system level”. It is also necessary to “strengthen cooperation between the Commission, policy makers and European supervisors”.
“More work is needed to develop coherent and relevant methodology scenarios to quantify sustainability risk and improve risk management”, he concluded. (Original version in French by Anne Damiani)