In a seminal speech, fittingly in the heart of the City at Lloyd’s, Mark Carney introduced the implications of the comprehensive report produced by the PRA on the impact of climate change on the UK insurance sector. The PRA report summarises those impacts for insurers as follows:
- physical risks: more claims from floods and storms plus indirect impacts such as supply chain disruption;
- transitional risks: mainly the potential re-pricing of carbon intensive financial assets, and the speed at which such re-pricing might occur;
- liability risks: claims from third parties who have suffered loss from climate change (potentially against polluters, asset owners (including trustees) and their advisers).
Mark Carney went on to emphasise the importance of developing meaningful and universal carbon disclosures to allow the market to work more effectively, with governments providing guidance on possible carbon price paths.
Climate change is on the horizon (although already impacting insurance) but its catastrophic effects may be tragically beyond many business and political visions, and even regulatory mandates.