Insurance supervision lags behind banking in sustainability efforts

Written by Adam Cadle

17/10/2024

Banking and insurance supervisory authorities globally are making progress on climate-related financial risks, but insurance supervision consistently lags behind banking supervision, WWF’s Sustainable Financial Regulations and Central Bank (SUSREG) Tracker 2024 has revealed.

WWF said “this can partially be explained by the fact that many regulations are initially drafted with banking in mind, resulting in a lack of specific guidance tailored to the unique business operations of the insurance industry”.

Despite this, it said that climate risk is increasingly being integrated into insurance supervision, with just eight countries assessed scoring below 25%.

Europe leads in insurance supervision due to a regulatory influx including the Corporate Sustainability Reporting Directive (CSRD), which applies to all corporates and financial institutions that meet specific thresholds. Additionally, amendments to the Solvency II directive and consultations on EIOPA prudential rules have further contributed to the sector's climate and general sustainability supervision.

Europe and APAC have shown positive progress in integrating environmental risks to insurance supervision, while the Americas and MEA regions show stagnation, and a slight decrease compared to last year. One factor contributing to this decline is the stricter evaluation of certain indicators and the inclusion of new countries, which has lowered the overall average score.

Social risks continue to lag behind climate and environmental risks, though there is a positive trend in Europe, APAC, and the Americas since 2022. Outside the EU, insurance supervisors in countries like Brazil, Malaysia, and Indonesia have integrated social risks into their supervisory guidance. In Malaysia, for example, the Value-based Intermediation Impact Assessment Framework, that serves as a reference document outlines social risks to be considered by insurance companies.

The assessment's coverage has expanded from 47 jurisdictions in 2023 to 52 in 2024.

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