The Central Bank of Ireland has commenced a public consultation on proposals to introduce guidance on climate change risks for the insurance sector.

The proposed guidance aims to clarify the Central Bank’s expectations on how (re)insurers address climate change risks in their business and to assist them in developing their governance and risk management frameworks to do this.

The Central Bank has said that the increased frequency and severity of weather-related events linked to climate change are already having an impact on the insurance sector globally, noting that the increase in insured claims arising from physical events alongside the impact of the necessary actions to transition away from greenhouse gas intensive activities, mean that (re)insurers need to act now to assess and appropriately manage climate change risk.

A survey published by the Central Bank in May 2021 found that only 20% of (re)insurers fully integrate climate-change risk in their risk management framework, with less than half conducting some form of scenario analysis of stress testing.

Gabriel Makhlouf, Governor of the Central Bank of Ireland, stated, “We have identified the need to strengthen the resilience of the financial system to climate-related risks and supporting the transition to a carbon-neutral economy as an integral theme of our strategy. Climate change is no longer an emerging risk – the stakes are high, not just for the future viability of the insurance sector, but also for society as a whole.”

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