

The Bank of England (BoE) has today warned insurers about climate change liability risks and also the effect that climate change could have on sovereign debt.
In a speech given at the Moody’s Insurance Summit Webinar: The resilience of Insurers in a Changing Climate, executive director, insurance supervision division, BoE, Anna Sweeney said: “This refers to risks that could arise for insurance firms from parties who have suffered loss from climate change – for example from firms misreading the transition risk, or who have suffered the consequences of physical risk, and then seek to recover those losses from others who they believe may have been responsible”.
Another area of financial risk stemming from climate change for insurers is on investments.
“The value of investments is not only at risk from physical damage to property, but also through the disruption of a normal working of the economy - affecting corporate profits and hence a wider range of assets. In extreme circumstances, they could affect the value of sovereign debt,” Sweeney stated.
Addressing how insurers should respond to climate change, Sweeney said: “On the General Insurance (GI) side, considerations of climate risk will be through the lens of tail risk arising from natural catastrophe, in defining appropriate levels of coverage.
“For life insurers, they will need to consider the longer-term implications of climate change on the health and longevity of our societies. While the industry will inevitably need to collaborate with other professionals across the financial sector to manage these risks effectively, the long and short-term aspects of insurance business are well-suited to the context of climate change, given climatic impacts will be both extreme and crystallise over an extended time horizon.”