Risk/evidence-based approach must be pursued around prudential treatment of sustainability risks, Insurance Europe argues

Written by Adam Cadle

08/03/2023

A risk and evidence-based approach must be pursued around the prudential treatment of sustainability risks, and to maintain Solvency II’s risk-based nature, Insurance Europe has argued in its response to a discussion paper by EIOPA on the subject.

European insurers strongly support the drive towards sustainability and are ready to build on their current actions to contribute further to the transition to a more sustainable society. Furthermore, the industry is supportive of EIOPA receiving a mandate from the EC, in the context of the Solvency II 2020 review, to determine if there is evidence, based on available data, to justify a differential prudential treatment of exposures related to environmental, social and governance (ESG) assets or activities.

Insurance Europe said, however, that EIOPA raises “valid, yet challenging to answer questions” in is discussion paper, due to the “unstable, scarce and not sufficiently standardised data available in this area”. In particular, it said that “the isolation of the sustainability element from other (non)economic parameters and subjective influences in the constantly changing environment will be ambitious and difficult”.

The industry has suggested being cautious and to avoid taking an overly theoretical and complex approach.

“There are many uncertainties involved and the chosen assumptions and approach will heavily impact the outcomes,” Insurance Europe warned. “Therefore, any results should be interpreted with the necessary caution, and conclusions or actions based on the results should be approached with care. Furthermore, any work in this area should also be proportionate and feasible for smaller, non-complex insurers.”

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