Insurers' climate-related disclosures

Those insurers reporting their climate-related disclosures under heightened regulation are pushing ahead, but there is still a lot to do, even for those making progress. This includes providing more detailed disclosures in key areas such as their plans to achieve net-zero targets and publishing in line with financial reporting timeframes. Insurers should also do more to monitor their performance against their climate-related strategy, understand the financial impact of climate-related matters and embrace the data challenges this brings. And they should do it soon. The first two IFRS^® Sustainability Disclosure Standards are expected later this month with requirements that apply in specific jurisdictions like the EU and US also expected soon.

With this in mind, the KPMG International Standards Group looked at the climate-related disclosures in the 2022 annual reports¹ of 35 major insurers around the world and noted the following key highlights.

• The location, timing and connectivity of climate-related disclosures make it challenging to understand the big picture – they are often provided in multiple documents, published on different dates.
• Assurance is becoming an emerging area of focus: more than half of insurers have obtained some form of assurance over climate-related data.
• Many insurers classify climate-related risks as a principal risk and recognise their impact on other risks (e.g. underwriting risks).
• Data quality is a key area of concern for a number of insurers (e.g. reliance on third party data/models and significant use of judgements and estimates).

So, what more can be learned from insurers’ climate-related disclosures in their 2022 annual reporting?

It should be noted that many of the UK, European and Australian insurers have published their more extensive climate-related disclosures at the same time as their financial statements – either in the annual report or in another standalone report (with cross-referencing).

40 percent of the insurers mention climate in the financial statements, though the disclosures are often limited, particularly on quantitative impacts. Typically, they acknowledge climate-related risks in the risk management notes. The majority do not consider the impact to be material at this time or in the short to medium term.

The new sustainability reporting requirements will not only introduce more rigour around the location and timing of climate-related disclosures, but will also increase the focus on their connectivity within and outside the financial statements. For example, the International Accounting Standards Board (IASB) has started a project on climate-related risks in the financial statements and the European Financial Reporting Advisory Group (EFRAG) will embark on a research project on the connectivity between financial and sustainability reporting.

Just over half the insurers surveyed have obtained some form of assurance over climate-related data. Generally, limited assurance is provided over certain quantitative metrics (e.g. greenhouse gas emissions and responsible investment) in the front part of the annual reports or in standalone sustainability reports. We also noted that climate-related matters feature more prominently in some insurers’ auditors’ reports – a trend generally observed in the UK and Europe.

Underwriting risk remains the area most affected by climate-related risks, followed by market risk and the litigation risks stemming from allegations of greenwashing.

We found that 77 percent of insurers disclose in their annual reports that climate-related risks (e.g. physical and transition risks) could have a material or adverse impact on their businesses. However, the impacts of these risks over the short, medium and long term are often unclear.

Collecting quality data is a challenge. Some insurers use primary data but if this is not possible then they depend on third party data and on using estimates and assumptions.

A number of insurers note that data challenges impact both their assessment of climate-related risks and opportunities and the greenhouse gas (GHG) emissions measurement across their operations, underwriting and investment portfolios.

Some insurers disclose that they are dependent on third-party data, models and tools to calculate the business impact of climate change. For example, they are using third-party tools to simulate and evaluate the frequency and severity of catastrophic events or require third-party investee data to calculate financed emissions.

To find out more, read our benchmarking analysis report on how insurers disclosed their climate-related matters in 2022. This includes our more detailed findings based on climate-related disclosures that formed part of insurers’ 2022 annual reports.