Industry think-tank The Geneva Association has launched a working group to develop climate risk assessment methodologies and tools for the insurance sector.

The Geneva Association Taskforce is comprised of experts from 17 of the world’s leading general and life insurers, who last week released their first report on challenges facing the industry as decarbonisation gathers pace in the global economy.

“In 2020 alone, the world witnessed massive wildfires in California and Australia, historic floods in China and a record hurricane season in the Atlantic,” Geneva Association MD Jad Ariss said.

“The societal impacts of climate change have become ubiquitous, and individuals and institutions must fully commit now to confronting the climate crisis.

“Insurers are obvious, strong leaders on global climate action, given their core functions -managing risk and investing - and our industry-led initiative demonstrates that they are proactively rising to the occasion.”

According to the report, there are several sources of uncertainty associated with transitioning to a low-carbon economy that needs to be considered in a climate risk assessment.

“Over the next decades, public policies, regulations, technological advancement, market conditions and other aspects of societal transition towards low-carbon economies will affect the level of climate change risk and the future risk landscape,” the report says.

“These factors highlight some of the inherent uncertainties that must be considered and accounted for when assessing exposure to climate change risk.”

Physical risk, the other threat mentioned in the report, is already being felt by the industry. Property and casualty insurers have been experiencing an evolution in risk exposures as a result of gradual climate change.

“Property catastrophe portfolios are in focus, but they benefit from a short-tail liability pattern,” the report says.

“With the majority of affected property insurance cover offered on an annual basis, [property and casualty] re/insurers have the opportunity to monitor gradual changes to the climate risk landscape and consider adjustments to pricing and/or product offerings.”

Click here to download the report.