EIOPA explores nature-related risks and their impact on insurers in staff paper

The European Insurance and Occupational Pensions Authority (EIOPA) published a “EIOPA Staff paper on nature-related risks and impacts for insurance“. Protecting nature’s biodiversity and ecosystems has become crucial in the fight against climate change, and the failure to account for, mitigate, and adapt to the consequences of nature loss could have economic implications that may put overall financial stability at risk.
The paper aims to identify key areas in supervisory and regulatory activity that require attention when addressing nature-related risks and their impacts on the insurance sector. It provides a framework for understanding how nature-related risks can translate into risks for (re)insurers‘ assets and liabilities. The paper also examines ways in which the insurance sector can meaningfully contribute to the conservation and restoration of nature through investments and underwriting activity.
The release of the staff paper comes after the European Commission issued a proposal for a regulation on nature restoration in June 2022. In December 2022, the Parties to the UN Biodiversity Conference (COP15) adopted the Kunming-Montreal Global Biodiversity Framework, which includes initiatives on „nature finance.“ This demonstrates the growing recognition of the potential consequences of the loss of nature to humankind and the need for action to protect it.
EIOPA’s future initiatives will aim to identify relevant data sets and tools for risk assessments and conduct materiality assessments for nature-related risks and impacts. The open access to data and development of scenarios and modeling will allow supervisors and undertakings to perform forward-looking risk assessments of nature-related risks. This will enable the insurance industry to better understand the potential impact of nature-related risks on their balance sheets and business more generally.
Overall, the staff paper highlights the need for the insurance industry to consider its role in contributing to the restoration and conservation of nature through investment and underwriting activity. It also demonstrates the growing recognition of the importance of nature-related risks and their potential impact on financial stability.