Climate-related disclosure data can help reveal insurers’ business-critical risk insights: Quiroga, Swiss Re

Insurance and reinsurance companies can use climate-related disclosure data to reveal business-critical risk insights, point to growth opportunities and lift the quality of their underwriting, according to Swiss Re’s Paloma Quiroga.

In a recent interview with Reinsurance News, Quiroga, Head Risk Consulting & Analytics explained that insurers face an array of disclosure mandates requiring them to document how their business models support ambitions to transition to a low-carbon emissions future, while addressing the implications of climate change for their operations.

“Beyond fulfilling regulatory obligations, however, insurance companies can use data analytics to reveal business-critical risk insights, point to growth opportunities and lift the quality of their underwriting,” she said.

Similar to homeowners undertaking energy audits to assess the carbon footprint of their houses, insurance companies worldwide are conducting audits on emissions generated by the companies and activities they protect.

A growing number of jurisdictions mandate insurance companies to report greenhouse gas emissions and assess climate change implications.

As explained by Quiroga, disclosure obligations laid out by governments and regulators aim to promote sustainable finance, improve risk management, and support the transition to a low-carbon economy.

In the wake of the 2015 Paris Agreement, the Task Force on Climate-related Financial Disclosures (TFCD) was established to provide guidance on emissions reporting standards.

In light of this, Quiroga stressed the importance for insurance companies to align their practices with the recommendations set forth by the TFCD to ensure they are adequately addressing climate-related financial risks.

“Meeting these commitments is critical as our industry does its part,” Quiroga highlighted. “For insurers, an important benefit of assessing their exposures towards transition and physical risks is that they can unearth actionable insights about their portfolios.

“These insights can help guide insurance companies’ efforts to avoid losses from physical risks, expose unseen transition risks, unlock attractive growth opportunities and improve their underwriting quality.”

Quiroga went on to note that insurers often require support in assessing transition and physical risks due to the complexity of these evaluations.

She continued: “We see reinsurers as having a key role to play in helping them with their climate-related data gathering processes and to overcome challenges that accompany this, including persistent gaps in information.

“For instance, with regards to transition risk, only about 24,000 corporations disclosed data about their greenhouse gas emissions voluntarily to the world’s largest environmental disclosure database. Though disclosures are rising, incomplete information can make it difficult for insurers working on their own to gather, interpret and report on their portfolio footprint.”

According to the executive, firms can help overcome such hurdles by taking a holistic approach that combines sophisticated modelling capabilities, proprietary data and in-house research capacity with relevant information from third-party data providers to address gaps in data.

A practical example of this concept is the development of predictive models by reinsurers and external entities. These models endeavour to assess and quantify the greenhouse-gas emission intensity associated with various companies across the globe.

Quiroga also believes that sustainability analytics “can provide a more sophisticated view of physical risks contained within an insurance portfolio, when paired with re/insurers’ perspectives on the implications of various transition pathways on physical risks that accompany floods, storms or wildfire.”

She underlined that as reinsurers play a crucial role in helping assess the carbon intensity of clients’ portfolios by comparing them to industry-wide data, they can pinpoint areas where insurers may want to consider management actions. This would be to rebalance the composition of their portfolios in a way that diversifies exposures to physical and transition risks.

“But insurers should also take advantage of insights about insurance premium pools available and the attractiveness of risks. The data that emerges can be integrated into an insurer’s own underwriting, as well, to aid them in their risk selection and costing decisions.

“Climate-related disclosures required by regulators are a reality. Through re/insurers pooling insights and analytics expertise, however, the data collation solution can be transformed into something very powerful: deep insights that enable insurers to navigate the complexities of climate risk while making their businesses more resilient,” concluded Quiroga.

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