Insurers carry out comprehensive scenario analyses to estimate impacts of climate change risks
How do the impacts of climate change affect individual insurers in the short and very long term? With scenario analyses, companies prepare themselves at an early stage for new or larger risks.
Climate change is in full swing. In principle, it is clear to all: the risks it poses to our society will be all the greater the fewer and the later countermeasures are taken. A transition as quickly as possible to a more sustainable way of living and doing business seems inevitable. For the economy, however, not only climate change itself but also this transition is associated with considerable disruptions and uncertainty.
As risk carriers and investors, insurers are faced with the task of identifying and assessing the risks associated with climate change and transition in a forward-looking manner. Scenario analyses can serve this purpose. In the meantime this has also been a requirement imposed on companies by insurance supervisory authorities. The insurance companies present the results in their so-called ORSA reports to the supervisory authority (the abbreviation stands for Own Risk and Solvency Assessment). Climate change scenarios are one of several components with which the future risk development is examined from the perspective of the companies. The ORSA itself is part of the Solvency II supervisory system.
The paper on "Climate change scenarios in the ORSA", which was significantly expanded in March 2023, is primarily aimed at GDV member companies. It is intended to provide impulses for thought and to show how companies can approach the topic and the regulatory requirements. However, the concrete implementation in the companies must be oriented towards their own risk profile and the respective possibilities and is exclusively the responsibility of the companies.
Please note the instructions for processing the NGFS data:
Data from the NGFS Scenario Explorer were used for the illustrations of the development of economic variables in the document GDV_Climate_change_scenarios_ORSA.pdf. The NGFS is the Network for Greening the Financial System (hereinafter also referred to as "Rights Holder"), a global association of central banks and supervisory authorities. All data are subject to copyright protection by the Rights Holder, who claims simple database rights under EU sui-generis database protection laws. However, the Rights Holder provides the NGFS Scenario Explorer to users free of charge. This is done under the exclusion of any warranty as well as under the inclusion of the licence agreement viewable here, which as a public license is an adaptation of the Creative Commons Attribution 4.0 International Public License. With the use of the NGFS Scenario Explorer, the underlying data are subjected to processing through the application of scenarios. The figures in the document are the result of this processing. The Right Holder maintains the copyright to these figures and data.