The Bank of England (BoE) said on Wednesday that insurers must fill data gaps in order to be better prepared for the impact of climate change on their operations, and that additional research on how much capital they should hold may be required.
The Bank of England recently published the results of its first climate-related stress test of major insurers and banks, concluding that they would be able to cope in general.
“Addressing data gaps for climate analysis is a priority if insurers are to deliver effective climate risk management, as well as innovate and develop products to support the transition to a more climate-sustainable pathway,” BoE technical head of division Stefan Claus told the Association of British Insurers (ABI).
Another gap is that the capital framework does not adequately cover climate risks, and a conference on this topic is scheduled for the fourth quarter of this year, according to Claus.
Stuart Kirk, the head of responsible investments at HSBC Asset Management, sparked outrage last month when he said central bank policymakers were exaggerating the financial risks of climate change, prompting his suspension.
“Climate risk is a key challenge that we are dealing with and will have to grapple with,” Claus said when asked if he agreed with the comments.
“It is critical that firms develop the capabilities to understand how to support the transition while also reducing and mitigating the potential downsides for primary risk.”
The ABI said in a statement on Wednesday that nearly 90% of life insurers and more than half of general insurers in the UK are part of the United Nations’ “Race to Zero” campaign to reduce carbon emissions, though it added that more action was needed.
The trade body urged the government to implement “meaningful reform” of the Solvency II regime, which governs insurer capital, to allow insurers to invest more in green infrastructure.