Public consultation on climate risk supervisory guidance – market conduct and scenario analysis

The consultation closed on 23 February 2024.

Background information

Climate change is a key strategic theme for the IAIS as it is a source of financial risk, which impacts the resilience of individual insurers and could lead to financial stability risk. An adequate response from supervisors to both the risks and business activity related to climate change will support the objectives of insurance supervision of protecting policyholders, contributing to financial stability and promoting the maintenance of a fair, safe and stable insurance market.

To promote a globally consistent approach and address any gaps in the global framework for insurance supervision, the IAIS has initiated a series of public consultations on proposed changes to guidance related to various Insurance Core Principles (ICPs) and on new supporting material.

The IAIS conducted the first consultation in March 2023. The responses received during that first consultation are available here, as well as an update on how the IAIS is considering these comments in its ongoing work. The IAIS will respond comprehensively to the comments of each consultation at the end of the project in 2024.

Consultation

This second consultation on climate risk in the insurance sector focuses on proposed supporting material addressing issues relating to market conduct and scenario analysis, through the publication of the following two draft application papers:

• Draft Application Paper on climate risk market conduct issues in the insurance sector aims to support supervisors in their efforts to identify instances of potential unfair treatment of consumers that can emerge in relation to natural catastrophe (NatCat) protection products or sustainability-focused products, for example through “greenwashing” or misleading information on the sustainability of an insurer’s operations. The paper will assist supervisors in considering the climate-related aspects of ICP 19 (Conduct of Business) and ICP 21 (Countering Fraud in Insurance).

• Draft Application Paper on climate risk scenario analysis in the insurance sector focuses on the use of climate-related scenario analysis as a tool used by both supervisors and insurers to understand the risks to which the insurance sector is exposed at a micro- and macroprudential level. The paper considers why and how climate-related scenario analysis exercises should be used and the extent to which they can overcome some of the shortcomings of existing methods for assessing risks. In particular, the paper focuses on how climate-related scenario analysis should be considered in light of the standards set out in ICP 16 (Enterprise Risk Management for Solvency Purposes) and ICP 24 (Macroprudential Supervision).

On 23 February 2024, the public consultation on climate risk supervisory guidance – market conduct and scenario analysis closed. The IAIS is in the process of reviewing the comments received. All consultation questions were optional, allowing stakeholders to comment on all or a subset of questions. The consultation tool is now closed, and it is no longer possible to submit comments.

A public background session was held via webinar on 12 December 2023 13:00 to 14:30 CET to present the papers and answer questions from stakeholders. A recording session can be found here.