The Central Bank has launched a public consultation on proposals to introduce guidance on climate-change risks for the insurance sector.

The regulator said that the issue should no longer be seen as an ‘emerging risk’, and that the sector needed to take action now to assess and manage risks from climate change.

Governor Gabriel Makhlouf (pictured) warned that the bank expected to see “a step change” in the way insurers and reinsurers were responding to the issue.

Uncertainty

The regulator stated that the increased frequency and severity of weather-related events was already having an impact on the insurance sector globally.

It said that, while there was a consensus that action was required, there was uncertainty on what to do and where to begin.

A survey published by the Central Bank last year found that only 20% of insurers and reinsurers fully integrated climate-change risk in their risk-management framework.

High stakes

Makhlouf said: “We have identified the need to strengthen the resilience of the financial system to climate-related risks, and supporting the transition to a carbon-neutral economy as an integral theme of our strategy.”

He added that the stakes were high – not just for the future viability of the insurance sector, but also for society as a whole.

The proposed guidance will aim to clarify the Central Bank’s expectations on how the sector addresses climate change, and to help firms to develop their governance and risk-management frameworks to do this.