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Bank of England tells insurers there is still a “way to go” on climate risk

Anna Sweeney, executive director of the insurance supervision division at the Bank of England, today delivered a speech at Moody’s Insurance Summit webinar on ‘The resilience of insurers in a changing climate’. During the event, Sweeney noted that insurance companies will play a critical role through their support of climate-related risks and their provision of critical long-term finance, which supports economic growth.

“Consequently,” she said, “the resilience and the ability to manage climate-related risks within the insurance industry is of significant importance.”

With global assets under management of over US$13 trillion (approx. £10.06 trillion), the insurance sector has a substantial role to play in helping to safeguard society against significant climate change, she said. Evaluating climate risk is not a new concept for the insurance sector and many businesses have been considering this for some time. However, she noted that there is still some way to go for a number of insurers when it comes to embedding a climate risk management strategy which is underpinned by regular scenario modelling and detailed climate disclosures from all relevant parties.

Sweeney noted that how much of the capital insurers hold may be directly linked to their ability to cope with climate change risks. She also highlighted the possibility that the incentive to address climate change risk for both firms and supervisors could be enhanced if it was incorporated definitively into firms’ capital requirements.

“Climate risk remains a real and credible threat to the integrity and soundness of the global insurance industry which, without significant action now, will only get more pronounced in the future,” she said. “In light of this, the sector must continue to develop and enhance its approach, building on the early foundations of progress which demonstrated a commitment to mitigating the very worst impacts of climate change.”

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