Insurers heavily exposed to climate change: Global watchdog

(Reuters) — Insurers are heavily exposed to the impact of climate change and also face risk from their alternative investments in reinsurance, the International Association of Insurance Supervisors said in a report Wednesday.

Insurers continue to have “material exposure” to climate change through investments in fossil fuels and energy-intensive industries, as well as through their underwriting of natural catastrophe risk, the global insurance watchdog said.

This exposure could hit insurers’ profitability and eat into their capital buffers, according to the IAIS, which is made up of insurance regulators from the G20 and other economies.

After a year of record temperatures, COP28 talks in Dubai this week until Dec. 12 are seeking to overcome differences on the future of fossil fuel — the burning of which is the main cause of climate change.

Aggregate scores measuring the systemic risk of the insurance sector declined slightly in 2022, due to a drop in asset prices. However, insurers are “significantly” less risky than banks, the IAIS report found.

The IAIS said it would make more frequent off-site and on-site checks on insurers, because of the danger of sudden cash withdrawals.

“In the evolving digital landscape … factors such as social media can influence policyholder behavior and the speed at which collective action is initiated,” said Jonathan Dixon, IAIS Secretary General.