Insurers face new opportunities and challenges from climate change, according to an Actuaries Institute report.

Pressures will arise from physical, chronic physical and transition risks, but new business will be created through covering renewable energy projects, developing products for weather derivatives and the issue of climate bonds.

“Climate change raises real risks and opportunities for financial institutions, which need to be identified, managed and disclosed,” the institute’s paper on climate risk disclosure says.

“Over the longer term we expect that climate change will increase the risk of losses from natural hazards, which may result in increased premiums for home and property insurance, especially for customers in high-risk areas.

“If premiums become unaffordable for even a small group of customers, even if they accurately reflect the underlying risk, insurers may face significant reputational damage and potential government intervention, resulting in a shrinking insurance market.”

The paper outlines eight ways in which insurers and the wider financial sector may adapt to the evolving business landscape amid climate change.

These include identifying risks and opportunities across all operations, reviewing the management of these risks, developing the capability to measure the financial impact of climate risk and conducting scenario testing.