In a landmark speech at Lloyd's three years ago Mark Carney, Governor of the Bank of England, warned of the dangers that climate change could pose to the stability of the finance sector. Focusing on insurance, he put these dangers into three categories: physical, transition and liability risks. He urged firms to report on the costs, opportunities and risks created by climate change. And he announced the formation of the Task Force on Climate-related Financial Disclosures (TCFD), aiming for an internationally-recognised standard for reporting.
The TCFD published its recommendations last year. These standards are not yet mandatory (some insurers have chosen to use them). But the FCA is under mounting pressure to take full account of climate risk in its role as the UK's insurance regulator. For example in March this year the House of Commons' Environmental Audit Committee urged the FCA (in its role as an insurance supervisor) to do take more account of transition and litigation risks.
More generally, nowadays there is wider acknowledgment that environmental, social and governance factors (ESG) can directly bear on a company's financial performance, and that the risks and opportunities they give rise to should be taken into account by its board and reported to shareholders.
At a time when regulators are increasingly focused on understanding the systemic risks of climate change — and whether disclosure rules need to be updated accordingly — insurance companies are adapting their business models and prices to account for the changes in the environment.