NIBA urges brokers to review APRA publication on Climate Vulnerability Assessment

NIBA CEO Dallas Booth has urged insurance brokers to review APRA information paper titled Climate Vulnerability Assessment (CVA)

Written on 3 September, 2021
Tanaya Das

The National Insurance Brokers Association (NIBA) CEO, Dallas Booth has urged insurance brokers to review Australian Prudential Regulation Authority (APRA) information paper outlining the purpose, design and scope of the Climate Vulnerability Assessment (CVA) that is underway with Australia’s largest five banks.

NIBA CEO Dallas Booth said, “It is of critical importance that insurance brokers are front and centre in addressing the risks associated with climate change. I acknowledge that this information paper refers to the work being done at APRA in relation to the five major banks, but I am sure that the insurance industry will not be far behind. And if it becomes a key consideration for underwriters, it will need to be well understood by insurance brokers.”

Australia’s five largest banks are participating in the CVA: ANZ, Commonwealth Bank, Macquarie Bank, National Australia Bank and Westpac. The banks commenced their CVAs in June, and are due to submit their first CVA analysis towards the end of this year, with publication of aggregated results and findings expected early next year.

The inaugural CVA was designed in consultation with the participating banks and the Australian Banking Association, as well as other agencies on the Council of Financial Regulators. It uses two future climate scenarios published by the international Network for Greening the Financial System, which were tailored to Australian conditions: • a scenario exploring higher transition risks due to delayed or divergent emissions reduction pathways across countries and sectors. • a scenario that assumes limited further action on climate change globally, with efforts insufficient to avoid significant global warming, resulting in more severe physical risks.

APRA Chair Wayne Byres said: “APRA began the CVA program in the banking sector due to its centrality to the Australian financial system, as well as the potential impacts associated with climate risk across the portfolios, from household mortgages to business exposures”.

“The results should help the boards and management of participating institutions to understand and proactively address any identified risks, as well as capitalise on new opportunities. They will also help regulators with a better picture of the nature of the risks, and how financial institutions plan to respond.”

The information paper also compares and contrasts the CVA with similar assessments that other central banks and regulators, including the European Central Bank, the Bank of England and Banque de France, are undertaking in their jurisdictions. “Climate change is a global challenge and is driving major policy responses and investment decisions around the world. These will have consequences for Australian companies, presenting both risks and opportunities,” Byres added.

“Understanding how, where and over what timeframe these risks will play out is a test for financial regulators, as much as it is for institutions. In response, APRA will continue its collaboration with international peers to gain insights we can use to refine and strengthen our understanding, and ensure Australian financial institutions are appropriately managing those risks.”

You can access the CVA information paper on APRA’s website here.