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 is a follow-up to the EIOPA opinion on sustainability within Solvency II (published in September 2019) in which EIOPA noted that it was common for non-life business not to focus on climate risks due to the short-term duration of their contracts. Nevertheless, EIOPA considers that, as climate risks grow, non-life coverage may become increasingly unaffordable over the medium to long-term with more people priced out of the market. In the discussion paper EIOPA is looking at ways that insurers might contribute to climate change adaptation and mitigation through ‘impact underwriting’. This would include insurers finding ways by which they might incentivise policyholders to mitigate risks.
The discussion paper looks at pricing in the underwriting process and the consequences of short-term non-life contracts and annual re-pricing in the context of climate change and the key role of the insurance and reinsurance sector in contributing to climate change mitigation and adaptation.
The discussion paper includes a number of questions for stakeholders to respond to. For example, inviting views of industry solutions and public-private partnerships to maintain the availability and affordability of insurance; whether tax rules or local accounting standards could improve the availability of cover; whether underwriting practices should take into account climate change considerations that go beyond a direct impact on the specific risk; and the role of direct risk prevention measures.
Responses to the questions asked in the paper are invited by 26 February 2021.