Life insurers gets to grips with climate-related risks, as concerns mount
Climate change can impact health and mortality, physical assets, and financial markets, all of which could have implications for life insurers and actuaries working for them.
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rop cap The Institute and Faculty of Actuaries (IFoA) published a guide this month (November 2019), titled ‘A Practical Guide to Climate Change for Life Actuaries’. The guide seeks to provide information to support actuaries to integrate climate change considerations into their work. It aims to help life actuaries respond to the 2017 IFoA Risk Alert on Climate-Related Risks, which stated: “Actuaries should ensure they understand, and are clear in communicating, the extent to which they have taken account of climate-related risks in any relevant decisions, calculations or advice.”
Climate change can impact health and mortality, physical assets, and financial markets, all of which could have implications for life insurers and actuaries working for them. As the new guide points out, the wide range of existing climate impact modelling outputs do not directly provide inputs to life insurance financial models. This new guide aims to bridge this gap by proposing approaches and frameworks to more directly link climate change considerations into typical insurance risk frameworks. This development could not come at a better time, as actuaries recently rated climate change as the number 1 risk in new survey, rating it as a bigger threat to insurers than cyber-crime, financial instability, and terrorism.
Practical Steps
The guide provides a rich discussion on how life actuaries can integrate climate change considerations in their day to day work, covering information relating to physical, transition and liability risk. For example, the guide reviews how climate change risk can be linked with risk classifications typically included in an Enterprise Risk Management (ERM) framework. The guide also sets out some considerations specific to linking the implications of climate change to demographic modelling, and illustrates how climate change modelling may be appropriate for life actuaries. Beyond this, the guide covers other elements which could be useful to members of the financial services sector more generally; for example, it discusses how insurers can identify both existing explicit and implicit regulatory and disclosure requirements and how these may change in future. It is worth reiterating that this is a practical guide, and as such, it includes helpful ‘Practical Steps’ at the end of each chapter.
This new guide is one of several other practical guides recently commissioned by the IFoA’s Resource & Environment (R&E) Board. Other guides commissioned by the R&E Board recently include guides on climate change targeted at general insurance (GI) practitioners and at actuaries advising on defined contribution or defined benefits pension schemes. A general introduction to climate change for all actuaries was also published in 2019 titled ‘Climate Change for Actuaries: An Introduction’. All R&E Board guides are available from the IFoA website, by clicking here. These guides, while not aiming to provide formal guidance, can help insurance firms and actuaries working for them start to include climate change into typical insurance risk frameworks.
The ideas presented in this article aim to inspire adaptation action – they are the views of the author and do not necessarily reflect those of the Global Center on Adaptation.
