While insurers agree that it is important to foster a forward-looking management of climate change risk, as well as other risks, climate change scenario analysis should only be included in an insurer's ORSA if it actually faces material climate risks.
"The ORSA is the company's own analysis and should remain this way. No separate regulatory treatment is needed in the context of the ORSA, as the process should already cover all relevant material risks. It is worth noting that European insurers are already at the forefront of climate change in the way in which they manage risks and pay claims, as well as in how they consider climate change in product development, asset allocation and other business areas" commented Insurance Europe.
The decision to perform forward looking analyses on climate change risks in the ORSA should also remain at the discretion of the insurer. Among other things, this will enable insurers to take into account their individual risk situations and any geographical specificities related to climate change risks.
Insurance Europe also warned against additional prescriptiveness in ORSA processes given uncertainties and limitations connected to climate risk scenarios, as well as differences in the materiality of climate risks across insurers and time horizons.
Furthermore, it noted that the ORSA is not necessarily the most appropriate tool to achieve forward-looking management of climate change risk via standardised scenarios, and that other tools may be more appropriate for an insurer to manage its risks.
Source: Insurance Europe