COVID has helped re/insurers prepare for climate change: BMA

Re/insurers have learned lessons from the COVID-19 pandemic that can be applied when dealing with climate change risks, according to the Bermuda Monetary Authority (BMA).

The BMA conducted a survey of Bermuda insurers to better understand the impact of climate change on the industry and the steps companies are taking to respond to climate change risks and opportunities.

It found that re/insurers have learned lessons from COVID in areas such as policy wordings, understanding interdependencies of global systems and the importance of underwriting portfolio diversification. These lessons will help it as it prepares for the ongoing transition to a low carbon economy and climate change, the BMA said.

Bermuda’s re/insurance community sees new business opportunities emerging from climate change, and a chance to position itself as a global leader in sustainability, the BMA added. Re/insurers believe they can leverage their good reputations in a changing business environment by helping clients to manage their transitions to a low carbon future. As such, the community is increasing its efforts to identify, measure, manage and reduce the risk associated with climate change, according to the BMA.

“Property and casualty (P&C) companies seem more advanced at considering climate-related risks in their risk management practices, given their historical exposure to climate-related risks in lines of business such as property catastrophe,” the BMA said.

The survey revealed that re/insurers - especially in the P&C sector - tend to view climate change as a long-term risk, presenting a challenge related to how this can be managed on mid to short-term business planning horizons. Re/insurers are also uncertain about how quickly the economy is evolving and will evolve to its low-carbon future, according to the survey.

The long-term impact on underwriting risk in the life insurance sector is still unclear, re/insurers said. For now, climate change impact initiatives for life companies appear more concentrated in the ambit of investment policy, the BMA noted.

The BMA said it was committed to integrating sustainability into its regulatory framework, particularly given its membership of the Sustainable Insurance Forum, and to supporting re/insurers in Bermuda as they adapt to climate change.

The BMA received 170 responses to its survey, including from more than 80 percent of registered large commercial insurers and groups in the life and P&C sectors.