The world’s insurance industry needs to deepen its understanding of nature-related loss – study
Geneva/New York – A major scoping study undertaken by the UNDP Sustainable Insurance Forum (SIF), ‘SIF Scoping Study: Nature-related Risks in the Global Insurance Sector’, has recommended that the insurance and reinsurance industry build better data and analytical tools, metrics and indicators to assess and measure nature-related risks.
It says there is a need to deepen understanding and raise awareness of nature-related risks among regulated entities and recommends that the industry disaggregate asset-level nature-related risks by regions, sub-regions, and countries as well as by types of risks.
The SIF members and partners; experts and industry participants have contributed to this scoping study. The study has employed a mixed research methodology and a survey of 108 insurance sector participants from 32 countries, 57 percent of whom were insurers and reinsurers, 10 percent insurance industry associations and 5 percent insurance brokers. It sought to gauge the financial risks of nature-related loss and assess how insurance supervisors and insurance companies are responding to these risks.
In principle, the SIF scoping study says, as the loss of natural assets increases, associated financial and economic risks could increase in magnitude and frequency and thus pose potential threats to the safety and soundness of insurance companies and broader financial stability.
It indicates that at the global level, the insurance and reinsurance sector’s capacity to understand nature-related risks, collect relevant data, and design tools to assess these risks is at an early stage of development. The lack of data and information was the reason most cited by insurers and reinsurers for not assessing nature-related risks, both physical and transitional.
Among the study’s key recommendations are that the insurance and reinsurance industry should continue to identify and build data, analytical tools, forward-looking metrics, and indicators to assess and measure nature-related risks. The study recommends that insurance and reinsurance supervisors consider supporting the development of non-prescriptive guidelines to support the industry in managing these risks.
Supervisors may also encourage regulated entities to undertake voluntary disclosure of nature-related financial risks in incremental steps and complement industry-specific reporting metrics for nature-related risks in the insurance sector, preferably aligning with relevant initiatives by other standard-setting bodies.
The scoping study was funded by the Executive Office of the UN Secretary-General through the UN Multi-Partner Trust Fund for Building a Strategy for Financing the 2030 Agenda.
The SIF will be sharing the findings in a series of webinars and will facilitate supervisor- and industry-led collaborative workshops to discuss challenges as they relate to nature-related financial risks. An online self-learning tutorial on understanding and assessing nature-related financial risks is also being planned.
Commenting on the new scoping study, Anna Sweeney, SIF Chair and Executive Director-Insurance, Bank of England: ‘SIF members have identified nature-related financial risks as an area of focus due to the potential impacts that biodiversity loss can have on insurers. The nature of nature means that such risks currently present a different challenge to that of climate-related financial risks, in particular, collective work and understanding remains at an early stage. This scoping study indicates the need for supervisors to better identify and assess the links between nature-related financial risks and the potential threats to the safety and soundness of insurance companies and broader financial stability. The study marks an important step for both the supervisory community and for the industry to develop their understanding further.’
Marcos Neto, Director, UNDP Finance Sector Hub (FSH): ‘Nature loss has the potential to affect all aspects of our lives. The economic impacts can extend to both the underwriting and investment practices of insurers. The work of the UNDP SIF will help to promote awareness of nature-related risks among insurance supervisors and companies alike. Increasing the understanding of these risks, and outlining the approaches of industry frontrunners, will equip the finance sector to build nature-positive businesses.’
Daniel Wang, Executive Director (Insurance), Monetary Authority of Singapore (MAS): ‘The MAS is an active member of the SIF, as a supervisory authority committed to addressing sustainability issues. The SIF scoping study will enable supervisors and the insurance industry to better understand nature-related risks and their potential impacts. In enhancing the knowledge and skills of supervisors and the industry in this area, the insurance sector as a whole will be better placed to take nature-positive action, respond to risks and ultimately help to ensure a resilient financial system.’
California Insurance Commissioner Ricardo Lara, who issued a first-of-its-kind report this summer on climate insurance, recommending greater investments in nature-based solutions and disclosure of climate risk: ‘With California and our international partners facing growing threats from wildfires, flooding, and extreme heat, our insurance sector must do more to understand nature-based risks and strengthen climate risk disclosures. We need a robust approach and this collaborative Sustainable Insurance Forum Report is an important step to preserving nature and protecting the public from climate impacts.’
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The UNDP Sustainable Insurance Forum (SIF)
Established by the United Nations with the support of the International Association of Insurance Supervisors (IAIS), the Sustainable Insurance Forum (SIF) is a global network of 33 insurance supervisors and regulators working together to strengthen responses to sustainability and climate change challenges facing the insurance sector. Launched in December 2016, the SIF provides a platform for international collaboration among supervisors, facilitating knowledge sharing, dialogue, and uptake of policy innovations. The SIF is hosted by the United Nations Development Programme (UNDP).
More information on the SIF is available at: www.sustainableinsuranceforum.org or from Ms. Sarah Zaidi, SIF Coordination and Networking Manager sarah.zaidi@undp.org.