"Crisis to Collaboration: Insurance Supervisory Developments on Climate Change" - Speech by Mr Daniel Wang, Executive Director, Monetary Authority of Singapore, at the Connecticut Conference on Climate Change and Insurance on 15 November 2023
Commissioner Andrew Mais, NAIC colleagues,
Distinguished guests, ladies and gentlemen,
1. Good morning. I wish to thank Commissioner Mais for the gracious invitation to speak at this year’s Connecticut Conference on Climate Change and Insurance (C4I).
2. I am glad to be joined this morning, in person and virtually, by fellow insurance supervisors, academics and members of the financial services industry. We are here today with a common purpose: to learn, engage in discussions, challenge existing paradigms, and most importantly, to listen. C4I’s agenda this year encompasses a comprehensive range of topics where insurance supervisors, public sector leaders and legislators have vital roles to play, be it “Bridging Data Gaps”, “Cultivating Resilient and Sustainable Practices” among insurers or “Fortifying Resilience” through legislative initiatives.
3. These topics are at the core of how the climate crisis is impacting the insurance industry, its customers and our communities, and where thoughtful, bold and collective actions are needed.
Role of insurance amidst climate change
4. It is important to remind ourselves that the insurance industry has been managing natural catastrophe and weather-related risks for decades, making it a crucial player in addressing climate change Insurers manage significant investment portfolios and are increasingly investing in renewables and low-carbon assets, supporting the transition to a greener economy. Insurance also acts as a financial safety net, shifting a portion of the financial burden from individuals and businesses to insurers in the event of climate-related disasters.
5. Insurers offer specialized policies such as flood or wildfire insurance for climate-related risks, of which some of the most sophisticated are here in the United States, aiding the recovery from climate-induced losses.
6. Insurers also invest in research to evaluate climate-related risks, to better understand the impacts of events like natural disasters and extreme weather on policyholders. In addition, insurers advocate for climate-friendly policies and are progressively implementing eco-conscious practices within their operations.
7. It is very encouraging to see how the insurance industry is contributing to climate change mitigation and adaptation. This is good news for our societies and communities. Three important questions remain - what more needs to be done, where can private-sector initiatives be complemented by public sector intervention and assistance, and what must change to bring about public-private synergy and multiply our combined efforts. I am hopeful that today’s C4I discussions will provide some answers to these questions.
International Climate Risk Work at the IAIS and SIF
8. Insurance supervisors can likewise contribute to robust climate risk management and ongoing public-private partnerships that facilitate national and global decarbonisation efforts. Supervisors at the International Association of Insurance Supervisors (IAIS) and the Sustainable Insurance Forum (SIF) are collaborating and working collectively towards this end.
9. First, to strengthen supervisory expectations, the IAIS is reinforcing the importance of incorporating climate-related risks into insurers’ business operations and risk management practices by providing additional guidance on supervisory expectations, including through an ongoing review of applicable Insurance Core Principles (ICP).
10. The first of three consultation papers relating to climate risk supervisory guidance was published in March. This outlined proposed changes to the ICP Introduction to position climate risk within the global framework for insurance supervision, and further proposed changes to the existing supporting material related to governance, risk management and internal controls. The second consultation paper will be published next month, and will cover supervisory guidance related to market conduct, including greenwashing, together with an Application Paper on Climate Risk Scenario Analysis.
11. Second, the IAIS has undertaken work to improve the availability and transparency of climate risk related data. Climate data elements have been incorporated and analysed in the IAIS’ Global Monitoring Exercise for the last three years, and this will continue. Each year’s data collection and resulting report contribute to a global baseline of climate risk data, and helps enhance the supervisory community’s assessment of the impact of climate change on the global insurance sector.
12. Third, with the finalisation of the ISSB’s sustainability disclosure standards, the IAIS has embarked on new work relating to climate risk disclosures and regulatory reporting for the insurance sector. It will study the type and nature of climate risk disclosures that can provide supervisors, investors, policyholders and other stakeholders with the information they need to assess the risks to an insurer.
13. The aforementioned priorities of the IAIS are meant to be iterative and mutually reinforcing - climate change awareness reinforced by standards, implemented through scenario analysis and effective risk management, supported by quality and available data. It is also a necessary cycle – one that encourages insurers to invest in modelling longer-term risks and understanding the potential implications; and to appreciate the actions that are required now even as different parts of the financial sector contribute to an orderly transition towards net zero.
14. While the IAIS has a more extensive membership, the Sustainable Insurance Forum (SIF) is a UNDP-supported grouping of about 40 like-minded insurance supervisors looking specifically into sustainability issues. Through its research and exchange of best practices on climate and biodiversity risks, the SIF is adopting a pathfinder role for the insurance sector by probing further and invoking deeper supervisory discussions, including on less explored areas in the sustainability space.
15. A 2022 high level stock-take among SIF members found that a number of supervisors had begun to include climate-related risks in their capital frameworks, mostly in Own Risk and Solvency Assessments (“ORSAs”), and more were planning to do so. SIF is conducting a deeper dive into the exact approaches taken, particularly among leading insurance supervisors.
16. Another area of SIF’s focus is net zero transition plans. SIF is gathering views from insurance supervisors on national and supervisory thinking on transition plans and aims to enhance understanding among its membership on the progress of transition planning and development of transition plans by licensed insurers.
17. Let me take the opportunity to share some updates on the work we are doing in Singapore to further origination and access of ESG data, climate-related disclosures and transition planning.
18. MAS launched Project Greenprint to partner the industry in co-developing digital utilities to facilitate the efficient flow of trusted ESG data. This data would support financial institutions and businesses in mobilising capital toward sustainable projects, monitoring their climate and sustainability-related commitments, and measuring the impact associated with their investments.
19. Under Project Greenprint, MAS and the Singapore Exchange piloted a digital ESG disclosure portal last year. Titled ESGenome, this portal allows SGX-listed companies to report baseline ESG metrics in a structured and efficient manner, and for investors to access the data in a comparable and consistent format.
20. Over the past year, more than 180 listed companies have been onboarded onto ESGenome, with over 40% of them starting to populate their data. On average, these listed companies have filled in 60 ESG metrics, with some populating up to 300 metrics. Moving forward, MAS will be scaling Project Greenprint to support national-level reporting needs, including reporting by SMEs and private companies, as well as defining baseline metrics to streamline SME reporting across multiple sustainability reporting frameworks and methodologies.
21. On sustainability-related disclosures, MAS welcomes the publication of the International Sustainability Standards Board's ("ISSB") disclosure standards, which will serve as a comprehensive global disclosure standard for corporate sustainability reporting. In Singapore, listed companies in five prioritised industries are already required to provide full TCFD-aligned disclosures this year, and all other listed companies will also have to do so on a ‘comply-or-explain’ basis.
22. MAS is working with other government agencies to chart a coordinated Whole of Government approach on strengthening and phasing in sustainability disclosure requirements. Through Singapore’s Sustainability Reporting Advisory Committee (SRAC), government agencies will work closely with the private sector to develop a sustainability reporting roadmap for Singapore-incorporated companies, including financial institutions and other non-listed companies.
23. In a recently concluded public consultation, the SRAC has recommended, among others, to align climate-related disclosures to the ISSB Sustainability Disclosure Standards and to mandate climate related disclosures for non-listed companies of annual revenue more than $1bn from FY2027. These are significant steps towards promoting sustainability and mitigating climate-related risks across the whole economy.
24. On Transition Planning, the process of transition planning is a crucial means for insurers to aid their own transition efforts, and those of their customers and investee companies, towards a low carbon future.
25. In this regard, MAS issued a consultation paper on our Transition Planning Guidelines (“TPG”) last month. The TPG builds on MAS’ existing environment risk supervisory guidance and focus on insurers’ internal strategic planning and risk management processes, so they can better prepare for the risks and potential changes in business models associated with the transition towards net zero.
26. In conclusion, while significant progress has been made in understanding and managing climate-related risks, there is still much work to be done. The urgency of the issue requires the insurance sector, including supervisors, to continue studying climate risks, improving our capabilities in identifying, assessing, and measuring these risks, and exploring new and innovative ways to mitigate them. The industry also continues to have a role to play in climate adaptation, working with the public sector to find solutions to serve our communities in the face of climate change.
27. Conferences like C4I help draw out the key questions and issues, while providing a safe space for the insurance industry, supervisors, public sector leaders and academics to debate and find collective solutions.
28. Thank you very much, and I wish you all a most fruitful conference ahead.
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