Stockholm (NordSIP) – The European Insurance and Occupational Pensions Authority (EIOPA) officially unveiled earlier this month its three-year plan, which will help integrate sustainable finance across all areas of its work. The goal is to ensure that occupational pension funds, insurers and reinsurers integrate sustainability risks in their risk management to protect consumers and secure financial stability.
In the forward-looking document, EIOPA defines which areas of activity it will prioritise from 2022 to 2024. Integrating sustainability risks in the prudential framework of insurers and pension funds is at the top of the list. EIOPA will be developing proposals for supervisory reporting of climate risks in Solvency II and analysing the prudential treatment under Solvency II of assets and activities associated with sustainable objectives. There are also plans to report on underwriting practices and prudential treatment of integrating climate change-related adaptation measures in non-life insurance products.
Following earlier analysis on transition risk, EIOPA will now focus on analysing physical risk and developing methodological principles of climate-change-insurance stress testing, thus consolidating the micro-and macroprudential risk assessments of sustainability risks. To support supervision of sustainability risks and supervisory convergence in the EU, EIOPA will also issue application guidance and conduct a pilot exercise on the supervision of the use of climate change risk scenarios in ORSA.
Promoting sustainability disclosures is another key area for the organisation. EIOPA vows, therefore, to provide guidance for insurers and pension funds on disclosures under the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation as well on the application of the sustainability-related provisions in the insurance sales process and advice to the European Commission on measures to address greenwashing.
In addition, EIOPA lists some specific areas like addressing protection for natural catastrophes, analysing consumers’ behaviour, and promoting the use of open-source modelling and data about climate change among its priorities for the coming years.
On this occasion, EIOPA also announced launching a pilot exercise on climate change adaptation in non-life underwriting. The exercise is expected to contribute to a better understanding of how insurers integrate climate-related adaptation measures in non-life insurance products. It will thus help EIOPA to assess the appropriateness of the prudential treatment of climate-related adaptation measures in the technical provisions and solvency capital requirements for non-life underwriting risks under Solvency II.
Note to insurers and pension funds: EIOPA is looking for volunteers to join their pilot exercise. Make sure to participate and help for the sustainable future of the industry.