EIOPA issues three publications addressing key issues of climate-related risk for insurance sector

Written by Adam Cadle

09/07/2021

EIOPA has proposed methodological steps which support the need to formalise an approach to re-assess and, where needed, recalibrate parameters for the natural catastrophe risk module of the Solvency II standard formula on a regular basis.

The steps are included in one of three publications issued by EIOPA as part of its activities on sustainable finance. The work addresses key issues of climate change-related risk for the insurance sector and continues to encourage insurers to play their role of enabling climate change mitigation and adaption.

“The regular re-assessment or recalibration would integrate new considerations such as use of models, which explicitly consider climate change, as well as the possibility to include new countries,” EIOPA said. Its paper also identifies the need to enhance the understanding on emerging perils such as wildfire or droughts.

“The methodology takes into account that the frequency and severity of natural catastrophes is expected to increase due to climate change. The solvency capital requirements for natural catastrophe underwriting risk therefore need to reflect the expected impact of climate change to ensure the financial resilience of (re)insurers covering natural catastrophes.”

EIOPA’s other papers cover its first pilot dashboard depicting the insurance protection gap for natural catastrophes in Europe, and also investigate the opportunity for (re)insurers, as risk managers and underwriters, to contribute to climate adaptation and mitigation, by supporting the insurability of climate change-related risks.

EIOPA’s deliverables support the EU Commission’s new Sustainable Finance Strategy in striving for greater protection against climate and environmental risks through insurance coverage, and integrating sustainability risks in the prudential framework for insurers.

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