A report produced by the United Nations (UN) in collaboration with 22 major insurance firms has suggested that the insurance industry needs to adopt an integrated approach in order to manage future climate change risk.

The final report of the UN’s Environment Programme’s Principles for Sustainable Insurance Initiative, which aims to pilot recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TFCD), assessed climate-related physical, transition and litigation risks in an integrated manner with a focus on scenario analysis.

The report found that the level of analytical sophistication varied considerably across climate risk categories, insurance lines and economic sectors. It argued that climate change presents not only downside risks but upside opportunities to develop new insurance products and expand existing ones with a changing risk landscape. The report said it was making a “ground-breaking, yet still preliminary” effort to develop a methodology to assess climate-change related litigation risk, encompassing potential costs, fines and penalties, prosecutions of executives, impacts on valuation and credit ratings, policyholder claims and exclusions between the insured and insurer.

UN report puts climate change at heart of insurance risk assessment