The Sustainable Insurance Forum (SIF) recognises the role that the global insurance sector will play in transitioning to a low-carbon, resilient and sustainable global economy, both in terms of the risks that it covers and the investments that it makes.
Its new report (50-page / 2.3MB PDF) urges insurance supervisors and regulators to make an initial assessment; then to better incorporate environmental factors into firm-level supervision and system-level stress testing. They should also improve the data they gather from the firms that they supervise to get a better idea of their exposure to climate change and other sustainability risks; and do more to support and break down regulatory barriers to 'green' investment.
Finally, supervisors should consider "making systemic linkages" between insurance and other financial sectors, real economy policy frameworks, and wider sustainable finance processes, according to the report.
The report also sets out examples of best practice from around the world, illustrating a "noted shift" in how supervisors and regulators are beginning to approach sustainability issues.
"In its role as risk manager, risk carrier and investor, the global insurance sector plays a cornerstone role in the management of sustainability-related risks and opportunities," SIF said in its report. "The risk transfer tools of insurance along with the deployment of its long-term capital base are highly relevant for many of the [UN's] 17 Sustainable Development Goals and the goals of the Paris Agreement on climate change."
"The insurance sector is responding to sustainability challenges with strategic action across both underwriting and investment, including through the UN-backed Principles for Sustainable Insurance (PSI). Leading insurers are incorporating environmental factors into the provision of insurance coverage and their underwriting strategies, reallocating capital towards green assets, and integrating environment, social and governance factors in asset allocation and stewardship activities. Such approaches are not, however, the norm," it said.
According to SIF, only 20% of global insurance premium volume is covered by insurers that have signed the PSI. It cites three particular "critical" risks to sustainability: climate change risk; access and affordability; and natural hazards, where only 30% of potential losses are insured worldwide and just 2% in low- and middle-income countries.
The SIF will work on a six-track programme during 2017, according to the report. This will focus on disclosure, access and affordability, sustainable insurance 'roadmaps', climate risks to investments, disaster risk reduction and resilience, and capacity building.
"The long-term vision of the SIF is of an insurance sector where sustainability factors are effectively integrated into the regulation and supervision of insurance companies," it said.
The SIF will work to achieve this goal to 2020 through practical content, expanding the SIF network and encouraging voluntary action by supervisors, it said.