Insurers are exposed to climate change from investment in fossil fuels and underwriting of NAT CAT risk, a watchdog has warned

Insurers have a ‘material exposure’ to climate change, from both their investments in fossil fuels and energy-intensive industries, in addition to their underwriting of natural catastrophe risk, warned the International Association of Insurance Supervisors (IAIS) in a new report.

This exposure can hurt insurers’ profitability and eat into their capital buffers, the report argued.

The report also highlighted that the IAIS have been making frequent off-site and on-site checks on insurers, because of the danger of sudden cash withdrawals.

“In evolving digital landscape… factors such as social media can influence policyholder behaviour and the speed at which collective action is initiated.”, said Jonathan Dixon, IAIS Secretary General.

The report comes as the COP28 is taking place in Dubai, where leading nations are discussing how to meet global targets to curb fossil fuels emissions to tackle climate change.

During the conference, former Secretary of State, Hillary Clinton called for reform of the insurance sector, in the wake of insurers withdrawing assistance against climate shocks.

Lower-income countries and workers in nations most affected by climate change have struggled to access insurance to help protect from economic shocks according to Reuters.

“We need to rethink the insurance industry. Insurance companies are pulling out of so many places. They’re not insuring homes. They’re not insuring businesses”, Mrs. Clinton said in a panel discussion at COP28.

In the United States, many insurers have already pulled back from areas of significant risk, such as California’s fire-prone forests or along the southeast coastlines that have been hit by Hurricanes.