EIOPA Sees Progress but Flags Gaps in Insurers’ Climate Risk Integration

Key Takeaways

• Progress Noted: Most insurers in the monitoring exercise now include physical and transition climate risk assessments in their ORSAs, reflecting meaningful uptake of EIOPA’s 2021 Opinion.
• Scenario Analysis Improving: Insurers are increasingly using quantitative methods and referencing NGFS scenarios to assess financial impacts, with more linking results to management decisions.
• Challenges Persist: Variations in methodologies, weak data availability, and difficulties with long-term planning continue to limit the depth and consistency of climate risk integration.
• Supervision Varies: National supervisors are advancing at different speeds. EIOPA will facilitate workshops and capacity-building to promote convergence.
• Broader Agenda Continues: Insights from the monitoring will inform EIOPA’s ongoing sustainability initiatives and development of tools to support climate risk supervision in insurance.

Deep Dive

European insurers are making notable headway in incorporating climate change into their risk frameworks, but hurdles like inconsistent methodologies, patchy data, and short planning horizons still stand in the way of fully embedding climate risks into decision-making. That’s the key takeaway from the European Insurance and Occupational Pensions Authority (EIOPA)’s latest Monitoring Exercise on the Use of Climate Change Scenarios in the ORSA, published alongside a public statement this week.

The exercise assessed how insurers across the European Economic Area are implementing EIOPA’s 2021 Opinion and 2022 guidance on integrating climate risks into their Own Risk and Solvency Assessment (ORSA), an important part of insurers’ risk management and capital planning.

According to EIOPA, the exercise confirmed that “significant progress” has been made. Most (re)insurers now include climate change scenarios, covering both physical risks from extreme weather events and transition risks related to the shift to a low-carbon economy, in their ORSAs. Many firms are now applying more sophisticated scenario analyses, and a growing number are linking those assessments to management actions and strategic decisions.

“Compared to the situation observed in 2021, most insurers in the scope of the exercise now include climate change scenarios in their ORSA,” EIOPA noted. The authority also observed greater use of quantitative models and more undertakings referencing global climate scenarios such as those developed by the Network for Greening the Financial System (NGFS).

Despite these advances, EIOPA’s report underscores persistent challenges and a lack of convergence in practices across jurisdictions. There are “material differences” in how insurers conduct climate risk materiality assessments and scenario analyses, even in countries with comparable exposures.

EIOPA suggested that these differences may not be entirely justified by risk profile disparities. Instead, they may reflect varying thresholds, methodologies, or ambition levels among insurers, a potential concern for comparability and supervisory oversight.

Perhaps the biggest barrier, however, is data. Insurers repeatedly flagged difficulties in accessing “reliable, granular, and standardised data” as a critical limitation. This is especially problematic when trying to model long-term climate scenarios, which often extend beyond typical ORSA planning horizons.

The report also noted that long-term analysis is still underdeveloped, limiting the integration of climate risk into capital and strategic planning in many cases.

On the supervisory front, EIOPA observed a similarly uneven landscape. While many national competent authorities (NCAs) are building capacity and refining supervisory methods, maturity varies significantly across member states. Nonetheless, EIOPA emphasized that supervisory momentum is growing and committed to promoting convergence through further guidance, workshops, and peer learning.

“Strengthening knowledge, improving access to data, and facilitating peer learning among NCAs are essential,” EIOPA stated.

The monitoring exercise covered a representative cross-section of the market in terms of coverage (around 85% by market share) but only about 26% by number of (re)insurers. This suggests that further work may be needed to assess adoption across smaller undertakings.

EIOPA says the results will feed into its ongoing sustainability agenda, including continued support for the integration of climate risks into the prudential framework and enhanced supervisory tools.

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