Climate change is the biggest risk multiplier facing the world today

As purveyors and managers of risk, insurers are at the forefront of this challenge. As an integral part of the global ecosystem, insurers also have opportunity to engage with a wide variety of counterparties (such as, investees, insureds, and suppliers) to influence change and drive more sustainable business practices across industries.

Consequently, the journey to Net Zero requires support and effort from all parts of the insurance enterprise: investing, underwriting, operations, reporting and risk management. As such, it is essential insurers adopt a holistic, consistent, integrated risk assessment approach to climate risk that touches all parts of their business.

Climate Risk for Insurers Series

Climate risk has the potential to have a broad impact on an insurer's business. Moody's Analytics thought leadership series on climate risk, helps insurers prepare for these challenges.

A series of six free, short and easy to digest papers.

Financial Impact of Climate Risk - Scenario Analysis

Understanding the financial impact of climate risk
Climate Scenario Analysis is challenging. Insurers need an approach to scenarios which addresses the complexity and uniqueness of their business model.
Moody's Analytics has extensive expertise of scenario modeling, deep domain knowledge of the insurance market and climate risk, that enable a range of solutions to offered:

  • Climate Pathway Scenario Service translates climate pathways into financial risk variables to power insurers’ asset and liability projections to support quantification of the financial impact from physical and transitional risk
  • Climate-Adjusted EDFs quantify climate-adjusted probabilities of default leveraging our comprehensive physical and transition risk data on corporate names for insurers to better understand the resilience of their portfolio





Underwriting Strategy
ESG is fast becoming a key consideration and potentially a competitive advantage, especially in the corporate P&C segment. For the growing number of insurers who are signatories to the Net Zero Insurance Alliance, setting independent underwriting criteria is an important principle.

Typical challenges are:

  • Incorporating climate and ESG risks into underwriting
  • Developing a balanced ESG scorecard that reflects an insurers own view of risk for public and private insureds
  • Developing a comprehensive narrative (covering both physical and transition risks)
  • Engaging with customers to develop a transition plan
  • Pricing for climate risks on catastrophe exposed lines

Investment Strategy
As asset owners and managers, insurance companies have historically incorporated a number of ESG factors (most notably governance concerns) into their investment and portfolio management operations. However, broader sustainable investment practices are still a relatively recent initiative. Insurers are continually looking at new performance and benchmark metrics to understand the ESG impact of their portfolios.
Typical challenges are:

  • Assessing the impact on a current portfolio in terms of financial impact, temperature alignment, carbon emissions and the potential for stranded assets
  • Designing a strategy to meet net zero temperature alignment
  • Implementing climate-aware strategic asset allocation
  • Screening investment selection for climate and ESG risks




Risk Strategy
Climate risk requires insurers to manage a range of emerging risks that will directly and indirectly impact the business and ensure they can monitor these risks across all facets of their business operations. Most notably, this would include their underwriting, investment and supply chain management operations. Insurers are currently focusing their efforts to apply a holistic approach to data and methodology to assess ESG risk performance in order to maintain consistency across the organization.

Typical challenges are:

  • Identifying physical and transition risk exposures on assets and liabilities
  • Translating climate risk into financial variables to measure financial impact (such as, market, credit, liquidity and insurance risks)
  • Assessing reputational, liquidity and operational risks
  • Developing mitigation plans
  • Monitoring climate and ESG risk on assets and liabilities
Regulatory Reporting and Disclosures
Insurers are under increasing pressure from multiple stakeholders to address sustainability issues, not least from investors, lenders and regulators for financial disclosures to better understand their resiliency. The Task Force on Climate-Related Disclosure (TCFD) is becoming a global standard for reporting and increasingly many jurisdictions are switching from voluntary to mandatory disclosures. Many regulators are now issuing guidelines to insurers about their expectations for financial disclosure and intend to switch from a supporting to supervisory role over the next 2-3 years.

Typical challenges are:

  • Undertaking regulatory stress testing, for example, CBES
  • Addressing scenario analysis recommendations of the TCFD
  • Integrating climate risks into the ORSA
  • Supporting compliance with EU Taxonomy and SFDR
Learn More About Climate Risk for Insurers

Speak to our team of experts to learn more and discuss how Moody's Analytics can help with your

  • Climate Scenario Analysis
  • Underwriting Strategy 
  • Investment Strategy
  • Risk Strategy
  • Regulatory Reporting and Disclosures