Expanded US standards for reporting climate change risks are being applauded in Australia.

Karl Mallon of Climate Risk Pty Ltd, which provides climate change risk analysis, says more information should lead to better risk management and capitalisation.

The National Association of Insurance Commissioners – the various state regulators who control the US insurance industry – now requires US insurers to disclose the financial risks they face from climate change and how they are responding.

The insurers must also report on how they engage and educate policymakers and policyholders on the risks, as well as investment strategy changes.

In Australia, APRA requires insurers to develop a risk management framework that addresses current and emerging risks and outlines the processes in place to manage and/or mitigate those risks.

This would usually include assessment of the likely impact of those risks on the insurer’s expected future claims experience, products and pricing, and future performance.

Dr Mallon told insuranceNEWS.com.au the traditional actuarial process based on historical information and forward projection does not cope well with the “sharp corners” of climate change.

Zurich Financial Services Australia CEO David Smith says the policyholder education component of the American regulations is interesting.
 
“We believe that insurers have a key role to play in helping the community, including brokers and customers, adapt and ultimately increase their level of resilience to the impacts of climate change,” he said.