Solvency II

Insurers raise concerns about aspects of EIOPA’s climate change ORSA guidance


Insurance Europe has responded to a consultation conducted by the European Insurance and Occupational Pensions Authority (EIOPA) on its application guidance on running climate change materiality assessments and using climate change scenarios in an insurer’s Own Risk and Solvency Assessment (ORSA).

While the industry welcomes the paper, EIOPA’s guidance risks creating a de facto standard, enabling supervisors to request justifications if insurers were to deviate from the guidance. This contradicts the meaning of an ORSA, which is the company's own analysis and should remain so. Furthermore, the guidance should neither pose constraints nor prescribe an ORSA structure.

The alignment of the ORSA time horizon with the strategic and business planning time horizon should be preserved to ensure that the ORSA remains a decision-useful tool. In addition, EIOPA’s guidance lacks clear reference to management actions. This is likely because the scenarios described in the consultation are for further development and information purposes. However, this should be made clearer by EIOPA.

EIOPA’s described approach for the materiality assessment process is quite complex and requires both a wide availability of detailed exposure data of an appropriate level of quality and the implementation of a framework for setting the thresholds, although on a qualitative basis.

Lastly, EIOPA’s proposed scenario analysis might be onerous for small- and mid-sized insurers — and even for larger undertakings. Having a simplified approach for SMEs would, therefore, be appreciated.