Nov 12, 2020

Climate Change Risk and TCFD: Why does SIF Prepare Issues Papers?

Case Study

Climate Change Risk and TCFD: Why does SIF Prepare Issues Papers?

Author: SIF

Tags: Issues Papers

One reason supervisors and regulators give for joining SIF is their interest in collaborating with their peers and partners to share knowledge and identify best practices related to sustainability. This includes research on emerging risks, knowledge-sharing on supervisory practices, high-level policy engagement, and joint supervisory statements.

To date SIF has collaborated with the International Association of Insurance Supervisors (IAIS) to produce two issues papers. An issue paper provides background on a topic, describes relevant current practices, actual examples or case studies, and/or identifies related regulatory and supervisory issues and challenges. They are primarily descriptive and not meant to create expectations on how supervisors should implement supervisory material. Issues Papers also often form part of the preparatory work for developing standards and may contain recommendations for future work by the IAIS.

In 2018 the ‘Issues Paper on Climate Change Risks to the Insurance Sector’ (2018 Issues Paper) was groundbreaking for being the first analysis of climate change risk by an international financial standards authority, and for confirming that climate risks warrant “ongoing and intensifying scrutiny” by supervisors.

As an Issues Paper, it sought to raise the awareness of insurers and supervisors to the challenges of climate change by providing examples of current material risks and impacts across underwriting and investment activities, and describing how these risks and impacts may be of relevance for the supervision and regulation of the sector. Most importantly, the paper set out current and contemplated supervisory approaches for addressing climate risks, providing a set of options for supervisors to consider in line with their mandates, statutory responsibilities, and strategic objectives. Ten case studies provided by SIF members set out the global “state of the art” on the supervision of climate risk in insurance (Annex 1: 2018 Issue Papers Case Studies).

The 2018 Issues Paper recommended that supervisors “should seek to increase their understanding of climate risks, and develop supervisory capabilities to be able to accurately evaluate the insurance sector’s actions to achieve climate resilience, across underwriting and investment activities”. Producing the 2018 Issues Paper shed light on the need for additional, more specific joint material from the IAIS and the SIF to support supervisors in their efforts to better understand and address climate change risks.

The importance of the 2018 Issues Paper has been demonstrated through the continued growth of SIF’s membership, the development of further work with IAIS, and SIF’s own Programme of Work 2021-2023. SIF members and partners have provided examples of how they have used the 2018 Issues Paper in their own jurisdictions and work, including:

  • Canada: the Office of the Superintendent of Financial Institutions (OSFI-BSIF) is drafting a discussion paper on climate risk that is expected to be released in December 2020, and is leveraging SIF’s work such as the SIF/IAIS 2020 Issues Paper to develop this.
  • United States of America: the New York State Department of Financial Services (NY-DFS) has developed a strategy for addressing the financial risks from climate change, and found SIF’s resources, including the 2018 Issues Paper, instrumental to this work. The 2018 Issues Paper was also cited in the NY-DFS Circular Letter to the Industry.
  • The Financial Stability Institute (FSI) within the Bank of International Settlements (BIS): a partner of SIF, has produced climate risk tutorials based on the 2018 ‘Issues Paper on Climate Change Risks to the Insurance Sector’. The tutorials are available on FSI-Connect, the BIS’s online resources portal exclusively for central banks, supervisory authorities, deposit insurers, and eligible public sector authorities. The portal covers international financial regulatory standards and sound supervisory practices, including key guidance on banking and insurance supervision.

The vast majority of insurers expect climate change to affect their business; however, while the largest globally active insurers have made progress on implementation of TCFD-aligned disclosures, implementation is still low across the sector as a whole. Following on from the 2018 Issues Paper, SIF and the IAIS developed the 2020 ‘Issues Paper on the Implementation of the Recommendations of the Task Force on Climate related Financial Disclosures’ (2020 Issues Paper).

The 2020 Issues Paper provides an overview of the relevance of the TCFD Framework to insurance supervision. It also summarises different efforts to assess levels of TCFD awareness and implementation within the insurance sector, using results from the SIF Survey and other publicly available information. The paper then sets out options for supervisory approaches, based on case studies from twelve jurisdictions, before concluding with a discussion on lessons learned through the Survey and suggestions for next steps. (Annex 2: 2020 Issue Papers Case Studies) SIF and IAIS collected inputs from a broad range of stakeholders, including through:

  • results from a SIF Survey on Implementation of the TCFD Recommendations and Supplemental Guidance that was conducted during the first half of 2019
  • case studies submitted by SIF members which supported the formulation of options for supervisors that are annexed in the paper
  • stakeholder input received during a workshop co hosted by the SIF and the IAIS in Zurich in September 2019, and
  • Comments received from the public consultation held between December 2019 and February 2020.

As an IAIS Issues Papers, this paper is descriptive and is not intended to create supervisory expectations. However, the speed at which supervisory practices relating to climate risk are evolving, both within individual jurisdictions and through supervisors’ collective activities, reflects the need to consider global level responses. In this context, the SIF and IAIS recognise the value of developing materials to support supervisors in their efforts to assess climate risks, including in relation to the ICPs. This paper is a step towards this objective, and lays the groundwork for future work, including the Application Paper on the Supervision of Climate-related Risks in the Insurance Sector. Please note the Draft Application Paper is open for public consultation till 12 January 2021.


Draft Application Paper on the Supervision of Climate-related Risks in the Insurance Sector 

13 October 2020

To support supervisors in their efforts to integrate climate-related risks into supervisory frameworks, the IAIS has developed a draft Application Paper jointly with the Sustainable Insurance Forum (SIF).

The IAIS is now seeking feedback on this draft Application Paper through public consultation. Feedback is invited by 12 January 2021 24.00 CET (Basel time). Feedback received by this deadline will enable the IAIS to further develop and finalise the Paper. After this deadline, the Consultation Tool will be closed and it will no longer be possible to submit any further comments.

Issues Paper on the Implementation of the Recommendations of the Task Force on Climate-related Financial Disclosures

February 2020

Issues Paper on Climate Change Risks to the Insurance Sector

July 2018

Annex 1: 2018 Issues Paper Case Studies

SIF members who contributed case studies:

  • Australia: Australian Prudential Regulation Authority (APRA);
  • Brazil: Superintendência de Seguros Privados (SUSEP);
  • France: Autorité de Contrôle Prudentiel et de Résolution (ACPR);
  • Italy: Istituto per la Vigilanza Sulle Assicurazioni (IVASS);
  • Netherlands: De Nederlandsche Bank (DNB);
  • Sweden: Finansinspektionen (FI);
  • UK: Bank of England Prudential Regulation Authority (PRA);
  • USA – California: California Department of Insurance (CDI), also describing activities undertaken by the US National Association of Insurance Commissioners (NAIC);
  • USA – Washington State: Office of the Insurance Commissioner (OIC).

Annex 2: 2020 Issues Paper Case Studies

Case studies were shared by the following SIF members as well as Bank Negara Malaysia:

  • Australia: Australian Prudential Regulation Authority (APRA)
  • European Union (EU)
  • Belgium: National Bank of Belgium (NBB)
  • Canada: Office of the Superintendent of Financial Institutions (OSFI)
  • France: Autorité de Contrôle Prudentiel et de Résolution (ACPR)
  • Germany : Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)
  • Italy: Istituto per la Vigilanza Sulle Assicurazioni (IVASS)
  • Japan: Financial Services Agency (FSA)
  • Singapore: Monetary Authority of Singapore (MAS)
  • South Africa: Prudential Authority (PA)
  • United Kingdom: Bank of England Prudential Regulation Authority (PRA)
  • United States: Joint Submission from the California Department of Insurance (CDI) and the Washington State Office of the Insurance Commissioner (OIC).