Page 109 - India Insurance Report 2023- BIMTECH

India Insurance Report - Series II 97

Such alternative risk transfer techniques are being used to bridge the gap created by traditional
insurance capacities due to the stress caused by climate change. The (re)insurers are also coming up with
new products to address transition risks. They are offering risk transfer solutions to the corporates in
their transition to a net–zero economy by minimizing the risks associated with renewable energy. Lack
of solar irradiation and wind availability leading to a drop in expected energy generation is an emerging
risk for the renewable sector. Insurance covers are being offered to insure the loss of energy generation
if there is a shortfall in the availability of wind power or solar radiation at the site where these renewable
power plants are commissioned. It is expected that more such innovative solutions are likely to be
introduced in the Indian market to cope with such emerging risks emanating from climate change.

Section 3 : Encouraging Climate-Smart Decision Making

The insurance industry has a distinct feature of being exposed on both asset and liability sides of the
balance sheet by climate risks. Property, casualty, and financial line risks are being pronounced and
affecting the liability side of the balance sheet of underwriters, while the asset side is impacted in terms
of the investment portfolio of reinsurers getting exposed to climate risks in terms of yield of the instruments
and the likelihood of assets being stranded. Reinsurers can influence the decision making to make it
climate-smart by integrating climate risk considerations into their underwriting and investment practices.
Reinsurers can also encourage the policyholders to adopt climate-smart practices by providing incentives
such as premium discounts for implementing risk reduction measures or using sustainable technologies.
Moreover, (re)insurers can actively engage with clients and partners to promote the adoption of climate-
resilient investments, such as renewable energy, green infrastructure, and sustainable agriculture. By
driving investments towards climate-friendly initiatives, (re)insurers can contribute to the transition to
a low-carbon and climate-resilient economy.

The starting point for any (re)insurer to assess the climate risk exposure of their entire portfolio and
how the portfolio will behave in different climate scenarios. Only when a credible assessment of climate
exposure is available, sustainability factors are then integrated into their underwriting decision making.
Climate risk screening is being used as one of the tools by (re)insurers which is a stress testing on the
underwriting portfolio for various climatic scenarios preparing them for informed decision making
concerning climate risks.

On the asset side, the (re)insurers globally have already started integrating ESG into investment
decision making by reducing the investment exposure to carbon-intensive sectors. As part of their net
zero plan, (re)insurers are in the process of evaluating their own baseline carbon footprint across their
processes, including, in particular, the investment to chalk out a plan for the transition to net zero.
(Re)Insurers are increasingly adopting a forward-looking view with the help of various scenarios to
ascertain how their investments may be impacted in different climate scenarios.

Section 4 : Advocacy and Thought Leadership

In addition to their financial role, (re)insurers can also leverage their expertise, data, and influence to