Sustainable Insurance Forum (SIF)

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By including this profile, the Initiative, its Supporting Institutions and the Secretariat do not endorse the activities described below nor the guidance and information provided in this profile.

Last updated: July 2018

Website: unepinquiry.org/sif/

Contact: Jeremy McDaniels (SIF Programme Manager), jeremy.mcdaniels@un.org

Summary: Launched at the end of 2016 by the UN Environment Programme, the Sustainable Insurance Forum (SIF) is a network of insurance supervisors and regulators working together on sustainability challenges facing the insurance sector. Although addressing sustainability issues in general, the SIF’s primary focus lies on environmental and climate challenges to insurance. The SIF defines sustainable insurance as “responsible and forward-looking” with the objective of “identifying, assessing, managing and monitoring risks and opportunities associated with environmental, social and governance issues”[1].

What are the objectives of the initiative?

“The long-term vision of the SIF is of an insurance sector where sustainability factors are effectively integrated into the regulation and supervision of insurance companies. Looking forward to 2020, the SIF will work to achieve this goal by facilitating voluntary action by supervisors, including delivering practical content, expanding the SIF network, solidifying institutional partnerships, and building capacity and supporting implementation.”[2]

“The objective of the Sustainable Insurance Forum is to strengthen insurance supervisors’ and regulators’ understanding of and responses to sustainability challenges and opportunities for the business of insurance. […] The SIF’s starting point is to address the environmental dimension of the sustainable insurance challenge through international cooperation.”

This objective aims to be realised through “voluntary actions around an initial set of five key themes:

  • Catalysing leadership through dialogue between supervisors and regulators
  • Sharing knowledge and lessons from emerging approaches
  • Deepening understanding on critical issues and knowledge gaps
  • Consolidating best practices and developing common approaches
  • Enabling uptake of best practice through capacity building”. [3]`

How is climate change specifically addressed?

In its report Sustainable Insurance: The Emerging Agenda, the SIF highlights climate change and natural disasters as two of the three priority areas for the Insurance sector. Climate change plays a central role in its work and the SIF put in place a dedicated work stream on climate risks and a second one on supporting the implementation of the recommendations provided by the Task Force on Climate-Related Financial Disclosures (TCFD).

Who launched it? Who is participating?

UN Environment Programme convened the SIF drawing on the experience generated through the now-completed Inquiry into the Design of a Sustainable Financial System and the Principles for Sustainable Insurance.

The membership of SIF is “insurance supervisors and regulators with a demonstrated interest in and commitment to strengthening their responses to sustainability issues. SIF members are free to contribute to the achievement of the SIF’s overarching objective consistent with their supervisory and regulatory mandates, areas of strategic interest and constraints, and differences in regulatory architecture”[4]. As of July 2018 the SIF had 22 members.

The SIF also works closely with the International Association of Insurance Supervisors (IAIS) and with the recently launched Central Bank and Supervisors Network for Greening the Financial System.

Why has this been put into place?

“The global insurance sector will play a pivotal role in the transition to a low-carbon, resilient and sustainable global economy, both in terms of the risks it covers and the investments it makes. Sustainable insurance is a strategic approach where all activities in the insurance value chain are conducted in a responsible and forward-looking manner by identifying, assessing, managing and monitoring risks and opportunities associated with environmental, social and governance issues. Insurance regulators and supervisors are starting to take steps to manage a range of critical sustainability issues, such as climate change.”[5]

The creation of the SIF is linked to one of the key recommendations of the 2015 UN Environment report Insurance 2030: Harnessing Insurance for Sustainable Development.

What are the main work streams/areas of work?

In 2018, the SIF has four work streams  focusing on:

  • Climate Risks: “The SIF is working with the IAIS to deliver joint outputs and engagement for supervisors interested in addressing climate change risks.” [6]
  • Supporting TCFD Implementation: “The SIF will continue to support its members in their efforts to encourage uptake of the recommendations of the FSB TCFD. This work will involve two main components:
    • Risk signaling: Identifying ways that supervisors can encourage better consumer-facing disclosure and provision of information relating to physical climate risks, as a way to raise awareness, encourage mitigation actions, improve decision-making relating to insurance purchasing.
    • Scenario Analysis: Sharing experience and refining lessons on approaches, methods, and metrics for supervisory scenario analysis of investment portfolios of regulated entities.[7]
  • Promoting Sustainable Insurance: “In addition to their core prudential role, supervisors can work to promote the development of sustainable insurance markets in a variety of different ways. The SIF is working with several members to develop a short stock-taking paper and action framework, which will be finalized in H2 2018.”[8]
  • Capacity Building for Supervisors: “Drawing on its research outputs and member expertise, the SIF will work to develop training materials and tools for supervisors to use in their jurisdictions.”[9]

What are outcomes of the Forum linked with the 5 Principles?

In July 2017 the SIF published a statement in support of the final TCFD recommendations, identifying four areas “where supervisors can play an important role to encourage uptake and thereby strengthen the functioning of insurance markets:

  1. By raising awareness of the TCFD recommendations among regulated firms.
  2. By working with market actors to build capacity and share tools, including for the development of scenarios and metrics.
  3. By incorporating relevant insights from climate disclosures into routine supervisory activities.
  4. Finally, by supporting the Task Force recommendations, or appropriate aspects of it, as a best practice to be considered by insurers in their financial disclosures.”

In August 2017 the SIF published its report “Sustainable Insurance: The Emerging Agenda for Supervisors and Regulators” presenting the experience of insurance supervisors and regulators incorporating sustainability on their operations, and suggesting a five-step framework for action building on observed commonalities:

  1. Initial Assessment: Supervisors often start by assessing the materiality of sustainability issues for the insurance sector, and implications for core mandates, objectives and strategies.
  2. Deepening Risk Analysis: Supervisors may explore how environmental factors can be better evaluated and integrated into routine supervisory oversight at the firm level, as well as system-level stress testing.
  3. Improving Information: Supervisors may gather information from firms and promote enhanced disclosure through voluntary guidance, surveys, and implementation of mandatory requirements, as well as enhancing transparency for consumers.
  4. Market Transformation: Supervisors can support new insurance markets through product frameworks and partnership facilities, and encourage change in investment practice by building awareness, promoting green financial markets, and examining regulatory barriers.
  5. Making Systemic Linkages: Finally, supervisors may explore connections between insurance and other financial sectors, real economy policy frameworks, and wider sustainable finance processes.”

At the local level, the SIF Secretariat worked in 2017 with Morocco’s insurance supervisor “to implement a national roadmap for sustainable finance into the insurance sector, drawing on international best practices and supporting a convening of national stakeholders.”[10]

Have intermediate or final reports / guidance been issued?

As of April 2018 the SIF published a report defining an agenda for supervisors and regulators in the field of sustainable insurance as well as a public contribution to the interim report of the TCFD recommendations.

  • Sustainable Insurance: The Emerging Agenda for Supervisors and Regulators (2017) – The report has a look into sustainability issues for the insurance sector and responses by supervisors and regulators to these challenges. It also contains a part on “insights from practice: towards a framework for action” and the outline of the 2017 working programme of the SIF.
  • Leading Insurance Supervisors Support Adoption of Climate Disclosure Recommendations official statement welcoming the recommendations and guidance of the TCFD (2017) – “Insurance is one of the financial sub-sectors most exposed to climate-related risks, being potentially exposed on both sides of its balance sheet. Better climate disclosure will enable insurance firms both to improve the underwriting of key risks and also strengthen the management of their investment assets. Better climate disclosure will also enhance the ability of insurance supervisors to ensure the soundness of insurance firms and contribute to the stability of the financial system as a whole.”

To facilitate knowledge sharing, the SIF also created a repository for related reports published by its members.

Calendar and milestones

* https://www.iaisweb.org/page/consultations/current-consultations/draft-issues-paper-on-climate-change-risks-to-the-insurance-sector/file/73565/sif-iais-issues-paper-on-climate-risk-to-the-insurance-sector-clean .


[1] https://www.sustainableinsuranceforum.org/about

[2] http://www.unepfi.org/news/industries/insurance/report-sustainable-insurance-the-emerging-agenda-for-supervisors-and-regulators/

[3] http://unepinquiry.org/wp-content/uploads/2017/03/SIF_Framework.pdf

[4] https://www.sustainableinsuranceforum.org/members

[5] https://www.sustainableinsuranceforum.org/about

[6] https://www.sustainableinsuranceforum.org/activities

[7] https://www.sustainableinsuranceforum.org/activities

[8] https://www.sustainableinsuranceforum.org/activities

[9] https://www.sustainableinsuranceforum.org/activities

[10] https://www.sustainableinsuranceforum.org/activities

Links with the 5 Voluntary Principles for Mainstreaming Climate Action

The SIF’s recommendations focus on insurance supervisors.

This section aims to support discussions on the implementation of the 5 voluntary Principles for Mainstreaming Climate Action. Information provided in this section is for reference only; the Climate Action in Financial Institutions Initiative, its Supporting Institutions and the Secretariat do not endorse the activities nor the guidance and information provided in this section.

The report Sustainable Insurance: The Emerging Agenda for Supervisors and Regulators notes that “Supervisors are taking action to integrate sustainability factors into routine supervisory oversight of firms, to better understand how such risks may bear on firm-level safety and soundness in the face of both shocks (such as natural disasters) and longer-term trends (such as climate change).”

“The key challenge now is to learn lessons from these initial efforts – to see if and how supervisory actions are deriving robust responses from firms, and where gaps may exist. For instance, research suggests further work is required to fully integrate climate risk factors into existing catastrophe models used by service providers and internally by firms.”

Regarding the system-level stress testing exercises, the report highlights that “as physical climate impacts may be non-linear and involve high uncertainty, it is important to examine if the boundaries of existing stress tests appropriately correspond to the range of future risks facing policyholders and firms.”

“The insurance sector helps communities understand, prevent and reduce sustainability risk. By pricing, sharing and carrying such risks, the insurance sector is an effective tool for managing interlinked sustainability challenges that are often covariant in nature – including natural hazards and climate shocks.”

 

The report Sustainable Insurance: The Emerging Agenda for Supervisors and Regulators, presents that supervisors “may seek to enhance flows of sustainability information to and from insurance firms to increase transparency and market efficiency. Looking across this evolving disclosure landscape, three dimensions are emerging as key:

  • Forward-looking: The focus of disclosure has shifted from only presenting historic results and past performance to emphasizing the centrality of forward-looking material, which will be critical to enabling clients, investors and other stakeholders to understand how well the institution is grappling with competing future trajectories. One striking result from the consultation undertaken by the TCFD was that “96% of respondents see scenario analysis as a key component of disclosure”.
  • Multiple Users: The increasing institutional focus on disclosure is leading to a realization that the users of reported information will not just be clients and investors within the financial system, but also policymakers who are looking to glean insights into potential real economy implications, such as consequences for fiscal policy, as well as the effectiveness of energy, environmental and economic policy.
  • Linking Disclosure Levels: Disclosure is needed at multiple levels to enable effective decision-making. Consistency in scenarios and methodologies will be necessary to enable each successive level of analysis to be decision-useful for corporations, financial firms, and regulators.”