We welcome the work done by the International Association of Insurance Supervisors (IAIS) and insurance supervisors from across the world regarding the Insurance Core Principles which are central to harmonising how insurers are supervised and regulated.

We welcome the IAIS’ focus on climate risk following the publication of the 2021 Application Paper on the Supervision of Climate-related risks in the Insurance Sector, which provides guidance on how aspects of corporate governance and risk management can already cover climate risks.

However, in our consultation response, we argue that emerging risks such as climate-related financial risks pose new challenges that are yet to be addressed.

In particular, the unprecedented nature of climate change and the radical uncertainty as to its evolution and that of the transition to a low carbon economy mean that climate-related risks are much more difficult to predict than other types of risks, and as such require an evolution of the supervisory and prudential frameworks.

Scientific evidence has established the need for a speedy decarbonisation and the complete end to new fossil fuel exploration, which is a key basis on which the IAIS and supervisors worldwide should rely.

Supervisors and policymakers should adopt an evidence-based precautionary approach to tackling climate-related risks, rather than delay action with calls for more data gathering and analysis.

We therefore urge the IAIS to re-assess and adapt its Insurance Core Principles so that they more adequately capture climate-related risks.

The IAIS work going forward should include the following ideas:

Moving away from a strict reliance on historical data to capture climate-related risks;

Linking variable remuneration with managing climate-related risks and achieving sustainability objectives;

Providing guidance on transition planning by insurers, and the monitoring of transition plans by insurance supervisors;

Updating insurers’ capital requirements to explicitly account for climate related risks;

Fostering a more active dialogue between insurance supervisors and representatives of civil society.

See also our blog on climate risks and insurers’ capital requirements and our response to EIOPA consultation on insurers’ capital requirements in light of sustainability risks (March 2023)