### Insurance and Risk The Insurance industry provides both traditional and non-traditional insurance-related products. - Traditional policy lines include property, life, casualty and reinsurance. - Nontraditional products include annuities, alternative risk transfers and financial guarantees. Entities in the insurance industry also engage in proprietary investments. Insurance entities generally operate within a single segment in the industry, for example, property and casualty, although some large insurance entities have diversified operations. Similarly, entities may vary based on the level of their geographical segmentation. _**Insurance premiums, underwriting revenue and investment income** drive industry growth, while **insurance claim payments** present the most significant cost and source of [[uncertainty]] for profits._ _Some insurance entities may be designated as Systemically Important Financial Institutions, thus exposing them to increased regulation and oversight._ > Insurance entities, through their products, can also create a form of moral hazard, reducing incentives to improve underlying behaviour and performance, and thus contributing to sustainability-related impacts. --- ### Sustainability Disclosure Topics and Metrics 1. **Policies Designed to Incentivise Responsible Behaviour** 1. Net Premiums written related to energy efficiency and low carbon tech (Quantitative) 1. The entity shall disclose the net premiums written for policies related to energy efficiency and low carbon technology, including renewable energy insurance, energy savings warranties, and carbon capture and storage insurance 2. **Physical Risk Exposure** 1. Probable Maximum Loss (PML) of insured products from weather-related natural catastrophes (Quantitative) - The entity shall disclose the Probable Maximum Loss (PML) of insured products from natural peril catastrophe events - The entity shall disclose the PML using, at a **minimum, three likelihood of exceedance scenarios**: (1) 2% (1-in-50); (2) 1% (1-in-100); (3) 0.4% (1-in-250) - The entity shall **disaggregate the PML by geographical location** - The entity shall report the PML amount on gross and net of catastrophe reinsurance bases: - The **gross PML** is the gross probable maximum loss for natural peril catastrophic events (prior to reinsurance) for annual aggregate exposure to all risks, including reinstatement premiums for the year following the relevant year based upon the entity’s catastrophe model. - The **net PML** is the net probable maximum loss for natural peril catastrophic events (after reinsurance) for annual aggregate exposure to all risks, including reinstatement premiums for the year following the relevant year based upon the entity’s catastrophe model. 2. Total amount of monetary losses attributable to insurance pay-outs from (1) modelled natural catastrophes and (2) non-modelled natural catastrophes by type of event and geographical segment (net and gross of reinsurance 1. The entity shall disclose the amount of policyholder benefits paid and claims incurred during the reporting period resulting from policy losses and benefits expenses related to modelled and non-modelled natural peril catastrophe events. 1. **Modelled natural catastrophes are typically large-scale events**, such as_ hurricanes and earthquakes, that the entity has analysed using a catastrophic risk model._ 2. **Non-modelled events are typically smaller-scale events**, such as floods, _droughts, snowstorms and tornadoes, that the entity has not analysed using a catastrophic model (CAT model)._ 1. CAT models are probabilistic mathematical models that simulate hazardous events and estimate the associated potential damages and insured losses. _They may be conducted by the entity or by a third party on behalf of the entity_ ---- ### Physical Risk Exposure Catastrophic losses associated with **extreme weather events** will continue to have a material, adverse effect on the Insurance industry. The extent of this effect may evolve as **climate change increases the frequency and severity** of both modelled and non-modelled natural catastrophes, including hurricanes, floods and droughts. Failure to **appropriately understand environmental risks, and price them** into the underwritten insurance products, may result in higher-than-expected claims on policies. Therefore, insurance entities that incorporate climate change considerations into their underwriting process for individual contracts, and well as the management of entity-level risks and capital adequacy, **may be better positioned to create value over the long-term**. Enhanced disclosure of an entity’s approach to incorporating these factors, in addition to **quantitative data such as the probable maximum loss and total losses attributable** to insurance pay-outs, may provide investors with the information necessary to assess current and future performance on this issue. --- [[Climate related Scenario Analysis]] | [[Climate Risk x Human Systems Dynamics]]