Eiopa chair backs "double materiality" assessment of climate risk - CORRECTED

Published in: Risk, Solvency II, Rest of Europe, Climate change and sustainability

Companies: European Insurance and Occupational Pensions Authority, Eiopa

Editor's note: This article was amended on 20 October to clarify that insurers will have to consider double materiality for their investments from 2 August 2022. Details of this were added in the third paragraph and the fourth paragraph was altered accordingly.

Insurers should be assessing how their assets and liabilities affect the climate as well as the climate risks in their portfolios, according to Petra Hielkema, chair of the European Insurance and Occupational Pensions Authority (Eiopa). 

Addressing the European Parliament’s Committee on Economic and Monetary Affairs meeting today, Paul Tang MEP noted how Solvency II will require firms to study the impact of climate change on their assets and liabilities.

From 2 August 2022, insurers will also be required to consider how their asset portfolios affect the climate – a concept known as double materiality. This follows a change in the wording of the prudent person principle that was finalised in August this year.

But insurers are not required to consider how their liability portfolios affect the climate.

“Do you think Solvency II should be brought in line with EU standards on sustainable finance through integration of the double materiality concept,” Tang asked.

Hielkema responded by saying double materiality is key for insurers and pension funds.

“We encourage pension funds and insurers to do that. If regulation can help make it even more firm, we would be supportive of that,” she said.

Hielkema admitted more could be done to understand the climate impacts of underwriting. Eiopa published a paper in July on “impact underwriting” that investigated how policyholders could be incentivised to mitigate and adapt to climate change.

Hielkema said the authority will begin work next month on a pilot programme on impact underwriting, in collaboration with some insurers.

She said the programme will investigate what it means, in practice, to include impact principles in underwriting and pricing; whether there are any regulatory barriers to doing so; and study consumer behaviour to understand whether they will buy such products or not.

Hielkema was also quizzed on her initial reaction to the European Commission’s proposal to ask Eiopa to investigate whether insurers’ “brown” investments should be penalised with higher capital charges, and/or “green” investments incentivised with lower capital charges.

“Given non-sustainable economic activities cause negative externalities that need to be internalised, it could well be there would be differences between sustainable and non-sustainable assets that need to be considered in the regulatory framework,” she said.

Eiopa is due to report its findings to the Commission in July 2023 and Hielkema said Eiopa would collaborate with the EU’s other financial authorities, which have been tasked with a similar exercise.

Eiopa is focusing on the risk profile of specific assets - property, mortgage loans and green bonds – where it has good data, she added.

Christopher Cundy