On 9 July, EIOPA published its Methodological paper on potential inclusion of climate change in the Nat Cat standard formula (here).
The secretariat of Insurance Europe has assessed the paper and considers EIOPA’s proposed approach to incorporating climate change into the NatCat parameters to be broadly positive.
As part of its proposal:
- EIOPA will formalise an approach to re-assess and, where material, recalibrate Nat Cat SCR parameters on a regular basis (every 3-5 years).
- EIOPA will monitor the need to expand the geographical scope of the existing perils affected by climate change (ie hail, flood and subsidence) and enhance its understanding of emerging climate-related perils (ie wildfires, droughts). Materiality will be a key consideration in its assessment.
- EIOPA notes that increased transparency is an important element for adequate consideration of climate change.
- EIOPA has not pursued its proposals to include a climate-risk loading factor or to reflect climate risk by recalibrating the correlation matrices.