The United Kingdom’s chief financial authority has written to the nation’s largest insurers, demanding to know what steps they are taking to protect their business models from climate change.
The Bank of England’s Prudential Regulation Authority has sent a request to about 30 large insurance companies enquiring if they have considered when climate change would begin to affect the viability of their business model.
The bank has also asked insurers how climate change could affect their investment portfolios, as well how they view the role of the insurance regulation in terms of climate change.
APRA told IRP it has not issued any formal guidance to insurance companies regarding climate change, and its current approach to the issue rests on its current regulatory principles.
In June, Australia’s Climate Institute released a report that found that climate change and extreme weather events could double the price of home insurance premiums and erode home property values in some areas by 20% or more within the term of a mortgage.
The report, commissioned in part by the consumer group CHOICE, also found some home insurance policies are unaffordable in high-risk areas, while some insurers will not offer policies.
The Climate Institute points out that the effects of climate change exposes insurers to higher payouts and investment in physical assets.
Climate Institute Deputy CEO Erwin Jackson says the Bank of England’s statement is a hugely significant development.
“What we are seeing is the mainstreaming of the realities of the carbon bubble and carbon risk,” he says.
“The reality is that many assets are vulnerable to the effects of climate change so we welcome the Bank of England’s move to get insurers to disclose whether and how they have assessed this risk.
“This will hopefully get many more everyday people thinking about how their long-term financial security is impacted by climate change and by investment decisions that don’t account for climate risk.”
The letters follow a statement by the Bank of England’s governor Mark Carney at a World Bank event earlier this year indicating that the vast majority of oil reserves should be considered unburnable if the world wants to avoid dangerous climate change.