Insurers must plug data gaps to be higher prepared for the impact of climate change on their operations and further work could also be needed on how much capital they need to hold, the Bank of England (BoE) said on Wednesday.
The BoE has just published the final result of its first climate-related stress test of leading insurers and banks, concluding they’d find a way to manage generally.
“Addressing data gaps for climate evaluation is a priority if insurers are to deliver effective climate risk management, and to innovate and develop products to support the transition to a more climate-sustainable pathway,” Stefan Claus, BoE technical head of division, told the Association of British Insurers (ABI).
One other gap is that the capital framework doesn’t adequately cover risks from climate and a conference on this issue is planned for the fourth quarter of this 12 months, Claus said.
Insurers, Banks Must Take Climate Motion or Face Profit Hit, Higher Capital Charges: BOE
HSBC Asset Management’s head of responsible investments Stuart Kirk caused a media storm last month after he said central bank policymakers were exaggerating the financial risks of climate change, remarks which led to his suspension.
“Climate risk is a key challenge that we’re coping with and we are going to must grapple with,” Claus said in answer to a matter as as to if he agreed with the comments.
“That is an absolute necessity, that firms develop the capabilities to grasp methods to support the transition and to cut back and mitigate the potential downsides for primary risk.”
Nearly 90% of life insurers and greater than half of general insurers in Britain are a part of the United Nations’ “Race to Zero” campaign to chop carbon emissions, the ABI said in a press release on Wednesday, though it added more motion was needed.
The trade body called on the federal government to supply “meaningful reform” of the Solvency II regime governing insurers’ capital to permit insurers to speculate more in green infrastructure.