The European Insurance and Occupational Pensions Authority (EIOPA) with a new report on the impact of climate change on life and health insurers and occupational pension providers.
Photo credit: Richard Vanlerberghe – Unsplash
Heat is Europe's deadliest climate hazard, accounting for 97% of fatalities from weather- and climate-related extremes in the EU-27 since 1980. The insurance and pensions sector is now looking at what this means for its business models. In a recent report, the European Insurance and Occupational Pensions Authority (EIOPA) assesses the impacts of climate change on life and health insurers and occupational pension providers. The report identifies extreme heat as the most significant climate-related liability risk for these providers.
To gauge risk exposure, EIOPA developed a risk-scoring framework that estimates heatwave impacts by type of undertaking, line of business and country. It combines hazard, vulnerability and exposure metrics and is largely aligned with EIOPA's methodology for measuring non-life insurers' underwriting exposure to physical climate change risk.
The report projects the greatest impact on the following lines of business:
- Non-life segment: medical expense, income protection and workers' compensation insurance.
- Life segment: similar-to-life health insurance and other non-participating life insurance.
The effects will not be uniform, however. Because mortality, morbidity and longevity risks can move in different directions, outcomes depend on how each product and portfolio is built. Heatwaves will tend to negatively affect insurers' own funds through products tied to mortality and health. Adjustments to longevity assumptions could cushion part of that hit.
EIOPA's recommendation for insurers is to build these emerging risks into their climate risk assessments, covering both direct effects and wider indirect macroeconomic ones. The impact is modest today, but its materiality is expected to rise over time.
Source: EIOPA
This insight has been drafted using material downloaded from the EIOPA website. EIOPA does not endorse this publication and in no way is liable for copyright or other intellectual property rights infringements nor for any damages caused to third-parties through this publication.
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