The National Insurance Brokers Association (NIBA) is urging insurance brokers to familiarise themselves with a paper outlining a new Climate Vulnerability Assessment (CVA) underway at Australia’s largest five banks.

NIBA CEO Dallas Booth says while the information paper refers to the work being done at the Australian Prudential Regulation Authority (APRA) in relation to major banks, it is of critical importance that insurance brokers are “front and centre” in addressing the risks associated with climate change.

“I am sure that the insurance industry will not be far behind and if it becomes a key consideration for underwriters, it will need to be well understood by insurance brokers,” Mr Booth said.

APRA, which published the CVA paper on Friday, says climate risks have the potential to cause immediate financial risks.

A system-wide approach is best placed to address the potential impacts, it says, and the CVA objectives are “widely applicable, including for the superannuation and insurance sectors … in Australia”.

ANZ, Commonwealth Bank, Macquarie Bank, National Australia Bank and Westpac commenced their CVAs in June and are due to submit their first CVA analysis this year, with publication of aggregated results and findings expected early next year.

The inaugural CVA uses two future climate scenarios tailored to Australian conditions: a scenario exploring higher transition risks due to delayed or divergent emissions reduction pathways, and a scenario that assumes limited further action on climate change globally and severe physical risks.

The results should help institutions proactively address identified risks and capitalise on new opportunities, APRA Chairman Wayne Byres said.

“Climate change is a global challenge and is driving major policy responses and investment decisions around the world. These will have consequences for Australian companies, presenting both risks and opportunities,” Mr Byres said.

APRA has pledged to continue its efforts to ensure Australian financial institutions are appropriately managing climate change risks.

See APRA’s CVA paper here.