Today, the European Insurance and Occupational Pensions Authority (EIOPA) has published a discussion paper on non-life underwriting and pricing in light of climate change.
The discussion paper highlights challenges associated with current non-life underwriting practices and options to ensure the availability and affordability of insurance products, in the context of climate change.
Non-life undertakings tend not to include climate-related risks in their pricing methodology, because the short-term nature of non-life contracts allows them to re-price annually.
However, given that climate-related losses are expected to grow meaning premiums would likely increase, there is the risk that insurance coverage becomes unaffordable or unavailable to policyholders.
The insurance sector can address this potential protection gap not only by transferring and pooling risk, but also by implementing the concept of impact underwriting.
(Re)insurers can contribute to climate adaptation and mitigation by incentivising policyholders to mitigate insured risks via risk-based pricing and contractual terms, and consider in their underwriting strategy measures that contribute to climate change adaptation or mitigation.
The discussion paper builds on work stemming from the Opinion on sustainability within Solvency II, published in 2019, and is part of EIOPA’s overall sustainable finance agenda.
EIOPA is inviting stakeholders to provide comments on the discussion paper by 26 February 2021, by filling in the survey.
- Publication date
- 10 December 2020