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Insurance Europe Warns of Regulatory Overreach
Industry group says the decision to perform forward-looking analyses on climate change risks should remain at the discretion of insurers.
- David Pilla
- February 2021
Regulation of insurers should only include the use of climate change scenario analysis if the insurer actually faces material climate risks, according to a European insurance industry trade group.
“While insurers agree that it is important to foster a forward-looking management of climate change risk, as well as other risks, climate change scenario analysis should only be included in an insurer's [Own Risk and Solvency Assessment] if it actually faces material climate risks,” Insurance Europe said in a statement.
ORSA “is not necessarily the most appropriate tool to achieve forward-looking management of climate change risk via standardized scenarios, and ... other tools may be more appropriate for an insurer to manage its risks.”
The statement comes as Insurance Europe published its response to a consultation conducted by the European Insurance and Occupational Pensions Authority on its draft opinion on the use of climate change scenarios in an insurer's ORSA.
“The decision to perform forward-looking analyses on climate change risks in the ORSA should remain at the discretion of the insurer,” Insurance Europe said. “Among other things, this will enable insurers to take into account their individual risk situations and any geographical specificities related to climate change risks.”
Insurance Europe warned against what it said is “additional prescriptiveness” in ORSA processes because of uncertainties and limitations connected to climate risk scenarios, as well as differences in the materiality of climate risks across insurers and time horizons.
The trade group said ORSA “is not necessarily the most appropriate tool to achieve forward-looking management of climate change risk via standardized scenarios, and ... other tools may be more appropriate for an insurer to manage its risks.”
Insurance Europe's response is to EIOPA's “Consultation on the draft Opinion on the supervision of the use of climate change risk scenarios in ORSA.”
Insurance Europe said prescriptiveness in ORSA processes should be avoided due to uncertainties and limitations that exist in the climate risks analyses.
“A standardized set of quantitative scenarios should not be included in the ORSA, as it creates a number of issues including the lack of consensus among experts regarding the choice of scenarios and their evolution in the future,” the response said.