Strategic Risk Assessment

Climate Change Risk Assessments 🌎 Climate-related financial disclosure requirements are expanding across jurisdictions, increasing expectations for companies to assess and report on climate-related risks and opportunities. A structured climate change risk assessment (CCRA) is central to meeting these evolving regulatory demands. CCRAs evaluate both physical risks—such as extreme weather events, water stress, and sea level rise—and transition risks, including policy changes, carbon pricing, and shifts in market or technology landscapes. They also help identify potential opportunities linked to decarbonization, energy efficiency, and new revenue models. Scenario analysis is a core component. It enables companies to test strategic resilience under divergent climate pathways, including high-emissions futures and low-emissions transitions aligned with the Paris Agreement. Most regulatory frameworks now require both perspectives. Benefits of a robust CCRA include improved risk management, reduced exposure to disruptions, and strengthened alignment with investor expectations. Insights from these assessments can be embedded into enterprise risk systems, capital planning, and strategic roadmaps. Key challenges include short-term thinking in risk registers, limited access to forward-looking climate data, and misalignment between climate risk analysis and existing sustainability goals. These gaps can reduce the effectiveness of disclosures and slow organizational response. Recommended approaches include leveraging established scenarios (e.g. IPCC, IEA), integrating outputs into ERM systems, using frameworks like ISSB and TCFD for structure, and applying competitive benchmarking to validate assumptions. Cross-functional engagement improves practical relevance. As regulatory standards converge, CCRAs are becoming a baseline expectation. Those who develop structured, forward-looking assessments will be better positioned to adapt business models, manage uncertainty, and align with capital markets under increasing climate scrutiny. Source: Ramboll #sustainability #sustainable #business #esg #climatechange #risk

🔔 Two new reports on Climate Stress Testing! Looking to understand climate stress testing, the data, the scenarios used, the analytical tools, and the outputs? We have two highly practical guides for you! The first one surveys the different climate stress tests conducted around the world, considers the structure of the exercises, the narratives they rely on, and how they are being used by supervisors and financial institutions alike. It looks at each element of a climate stress test to help your institution to execute effectively. The second one explores the data needed for physical risk assessments and transition risk assessments within climate stress tests, where to acquire that data and approaches for dealing with data limitations. Please reach out with any questions! Both can be freely downloaded here: https://lnkd.in/eAuszb-9 #climatestresstests #climaterisk #climatefinance #transitionrisk #physicalrisk #climatedata United Nations Environment Programme Finance Initiative (UNEP FI)

On this National Insurance Awareness Day, the conversation goes beyond protection. The bigger question today is: what is the true cost of exposure? The EY Global Insurance Outlook 2025 outlines how insurers are responding to a convergence of complex forces like geopolitical tensions, capital reallocation, protectionist policy shifts, and rising regulatory divergence across regions. For many businesses, these developments do not just increase risk. They reshape how risk behaves. Lower global trade, retreating multinationals, and restricted access to technology are already impacting demand for traditional insurance products and exposing gaps in existing portfolios. At the same time, macroeconomic imbalances from stagnant wages to widening retirement savings gaps are pushing insurers to rethink product accessibility and affordability, especially in life and pension segments. This is where the concept of Total Cost of Risk (TCOR), something I’ve been advocating in conversations with clients, becomes relevant. TCOR refers to the combined financial impact of all risks a business faces not just insured losses, but also indirect costs like reputational setbacks, compliance burdens, and operational disruptions. It reframes insurance from a cost center to a strategic function, accounting not only for premiums and claims but also for hidden exposures such as operational delays, reputational damage, compliance complexity, and missed capital productivity. As the EY report points out, 98 percent of CEOs expect to revise their investment strategies in response to geopolitical developments. Risk is not a backdrop anymore, it is a core variable in performance and planning. The question is no longer: What do we insure against? It is: What do we systematically underestimate? #NationalInsuranceAwarenessDay #TotalCostOfRisk #RiskAndResilience #GeopoliticalRisk #FutureOfInsurance

What would you do if your business's financial health depended on the weather? That’s not just a hypothetical. Increasingly, climate risks are reshaping how lenders assess the creditworthiness of businesses. Here’s why that matters and what it could mean for your bottom line. Let’s start with a simple truth: Not all loans are created equal. Loans backed by physical assets like commercial real estate tend to have higher recovery rates in case of default. Why? Because there’s a tangible asset something with value to recover, compare that to unsecured loans, where lenders are often left empty-handed if things go south. Now, Layer climate risk onto this equation. Imagine A factory located in a region prone to floods or hurricanes. The more vulnerable the location, the greater the risk that the physical asset could be damaged or even wiped out by extreme weather. That could significantly lower the recovery rate for lenders, turning what might have been a manageable risk into a major financial headache. This is where ESG (Environmental, Social, and Governance) maturity comes into play. Companies with robust climate risk strategies those proactively safeguarding their operations and assets are better positioned to weather the storm. But here’s the kicker: those that aren’t? They might face higher borrowing costs or even find themselves cut off from certain financial institutions altogether. According to the Global Risk Report 2024, climate-related risks are now among the top global risks over the next decade. And in finance, these risks translate directly into higher LGD (Loss Given Default) estimates. For borrowers, this means two things: 1) You’ll pay more to access capital if your ESG profile isn’t up to scratch, 2) You might need to rethink your climate strategy not just for the planet, but for your financial survival. From my perspective, this isn’t just about risk mitigation. It’s about staying competitive in an evolving market. Financial institutions are becoming more selective, and businesses need to adapt. By improving ESG maturity, companies can not only secure better loan terms but also position themselves as resilient players in a world where climate risk is no longer a distant threat but a present reality. The bottom line? Climate risk isn’t just an environmental issue it’s a business issue. And how you respond could make all the difference. What steps is your business taking to adapt to this new financial landscape? Let’s discuss this in the comments. ⬇️

Swiss Re published the latest World Insurance sigma. This edition also explores how a fragmented global order poses economic challenges and affects risk management. Open, interconnected markets, along with the global movement of premiums and capital, strengthens the industry’s ability to cover the largest risks. Since 2000, more than 60% of the insured claims burden from large loss events have been absorbed by international re/insurers. However, increasing fragmentation threatens this model, potentially impacting both the affordability and availability of insurance, and likely leading to wider protection gaps. The case for strengthening open, cross-border risk-sharing has never been more urgent. https://lnkd.in/gaFhDkEA

𝗧𝗵𝗲 𝗡𝗚𝗙𝗦 𝗷𝘂𝘀𝘁 𝗿𝗲𝗹𝗲𝗮𝘀𝗲𝗱 𝘀𝗼𝗺𝗲𝘁𝗵𝗶𝗻𝗴 𝗯𝗶𝗴— for the first time, we now have 𝘴𝘩𝘰𝘳𝘵-𝘵𝘦𝘳𝘮 𝘤𝘭𝘪𝘮𝘢𝘵𝘦 𝘴𝘤𝘦𝘯𝘢𝘳𝘪𝘰𝘴 tailored for 𝘀𝘁𝗿𝗲𝘀𝘀 𝘁𝗲𝘀𝘁𝗶𝗻𝗴, 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝘀𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆, 𝗮𝗻𝗱 𝗻𝗲𝗮𝗿-𝘁𝗲𝗿𝗺 𝗺𝗮𝗰𝗿𝗼 𝗿𝗶𝘀𝗸. 🔸 This isn't about 2050. It's the next five years, i.e. 𝟮𝟬𝟮𝟱–𝟮𝟬𝟯𝟬. 🔸 This isn't abstract. It's 𝗚𝗗𝗣 𝘀𝗵𝗼𝗰𝗸𝘀, 𝗰𝗿𝗲𝗱𝗶𝘁 𝗿𝗶𝘀𝗸, 𝗶𝗻𝗳𝗹𝗮𝘁𝗶𝗼𝗻, 𝗮𝗻𝗱 𝘂𝗻𝗲𝗺𝗽𝗹𝗼𝘆𝗺𝗲𝗻𝘁. 𝗧𝗵𝗲𝘀𝗲 𝗮𝗿𝗲 𝘁𝗵𝗲 𝘀𝗵𝗼𝗿𝘁-𝘁𝗲𝗿𝗺 𝘀𝗰𝗲𝗻𝗮𝗿𝗶𝗼𝘀: 1.  A smooth transition ("Highway to Paris") 2.  A delayed, abrupt policy shift ("Sudden Wake-Up Call") 3.  Physical risk disasters without transition ("Disasters & Policy Stagnation") 4.  A fragmented world with climate chaos and policy misalignment ("Diverging Realities") These scenarios are a wake-up call for taking short-term climate risks seriously. ➤ Delaying climate action could increase global 𝗚𝗗𝗣 𝗹𝗼𝘀𝘀𝗲𝘀 𝗯𝘆 𝗼𝘃𝗲𝗿 𝟯𝘅, and unemployment spikes by 1.3 percentage points (Sudden Wake-Up Call vs Highway to Paris). ➤ Climate disasters aren’t just regional anymore. Floods, fires and droughts in Asia or Africa can cut European 𝗚𝗗𝗣 𝗯𝘆 𝟭.𝟳%, driven by supply chain exposure. ➤ Credit risk spreads explode in carbon-intensive sectors. In some cases, default probabilities jump by 20–30 percentage points, stressing banks and insurers alike. ➤ Green sectors could lose out if the transition is abrupt, fragmented, or disrupted by physical shocks. 𝗛𝗲𝗿𝗲 𝗶𝘀 𝘄𝗵𝘆 𝘁𝗵𝗲𝘀𝗲 𝘀𝗰𝗲𝗻𝗮𝗿𝗶𝗼𝘀 𝗮𝗿𝗲 𝗮 𝗴𝗮𝗺𝗲-𝗰𝗵𝗮𝗻𝗴𝗲𝗿 ➤ For the first time, compound hazards—droughts, floods, wildfires—are modelled together, showing how climate risk can become systemic through trade, finance, and supply chains. ➤ Monetary policy is now integrated, so climate shocks affect interest rate paths, inflation dynamics, and macroeconomic volatility. ➤ Financial contagion is now factored in. Using advanced modelling, the framework maps how climate-related losses feed into default risk, cost of capital, and sectoral investment flows. ➤ Sector-by-sector and region-by-region outcomes now include asset-level exposure, probability of default, and sovereign bond repricing, offering tools fit for risk management. 𝗠𝘆 𝘁𝗮𝗸𝗲 This release is a step-change in how we understand and model climate risk. These scenarios are critical because they model economic and financial impacts on business over the next five years. A timeline relevant for senior management, boards and shareholders. Because these scenarios capture dynamic feedback loops, sector-specific capital costs, and second-round effects that ripple through the financial system, the risk science is taken to a whole new level. These real-world complexities have been missing from science to date, which is why these scenarios are so critical. #NGFS #NetZero #ClimateRisk _____________ For updates, follow me on LinkedIn: Scott Kelly

The Air India Flight AI171 tragedy marks a turning point—for families, for aviation safety, and for the global insurance market. While our first thoughts must be with the 240+ lives lost, the broader implications for the insurance and reinsurance sectors are significant. This is no longer just a national disaster—it’s a systemic stress event for aviation underwriting across Asia. Estimated insurance exposure: 1,000+ crore (Lead insurer: Tata AIG, Co-insurer: New India Assurance, Reinsurance share: ~95%, held by global carriers like Lloyd’s, AXA XL, and AIG) - Source: The Economic Times (https://lnkd.in/dr_tEYTx ) Strategic Implications for the Insurance Ecosystem: 1) Aviation Risk Repricing: Asia’s loss history will now carry more weight in underwriting decisions. Expect higher deductibles, exclusions, and revised hull valuations for wide-body aircraft. 2) Reinsurance Retention Reviews: Indian carriers—many of whom cede 95%+ of aviation risk—may be pushed to retain more risk going forward, altering their capital management strategy. 3) Premium Hardening: Airline renewal cycles will see double-digit hikes. Capacity constraints may also emerge if reinsurers pull back from select geographies. 4) Regulatory Pressure: Insurance regulators will likely reassess how systemic aviation risks are priced, pooled, and disclosed—especially in public sector insurers. This is a moment of deep loss—but also one that will redefine risk frameworks, capital allocation, and insurer accountability in aviation and beyond. The human toll is irreparable. But from an industry standpoint, how we recalibrate now will define resilience for the next decade.

Insurance has always been our quiet protector : boring, stable, invisible. But Global Insurance Market Report 2024 reveals a sector at a dangerous crossroads. Assets have climbed to $42T, liabilities to $36T. Solvency looks stable, yet rising interest rates are driving policyholders to surrender policies for better returns, testing liquidity buffers in ways that could destabilize. Life insurers are chasing yield in private credit, equity, and securitisation, some exposures now top 10%. At the same time, cross border reinsurance deals are transferring longevity and investment risks, concentrating fragility in the hands of a few global reinsurers. Climate change is no longer a distant threat. Up to 45% of insurer assets are climate linked, while natural catastrophe losses are intensifying. Though 68% of insurers use scenario analysis, even supervisors admit it is not enough. Protection gap is widening, threatening affordability and access. Reinsurance premiums have crossed $900B, with declining retention ratios showing insurers’ growing dependence on fewer players, raising concentration risk. Meanwhile, IFRS 9/17 has pushed more assets into hard to value categories, increasing systemic risk scores by 5.3%. Still lower than banks, but trajectory is concerning. Insurance must evolve into a true stabiliser: with smarter asset liability management, responsible AI adoption, global cooperation on climate risk, and tighter guardrails around reinsurance. Because real question is no longer whether insurance will survive, but whether it will protect society or quietly magnify its next big crisis. Refer attached report for detailed insights. ⬇️ #Insurance #Insurtech #ClimateRisk #Reinsurance #FinancialStability #RiskManagement #IFRS #InsuranceInnovation

𝗧𝗵𝗲 𝗗𝗲𝘃𝗶𝗹 𝗶𝘀 𝗶𝗻 𝘁𝗵𝗲 𝗗𝗲𝘁𝗮𝗶𝗹 – By Christopher Mapipo,Jr. A major bank discovered that one of its employees had been stealing money occasionally over an extended period. Once aware of the fraud, the bank promptly dismissed the employee and initiated legal action. They then submitted a claim to their Fidelity Guarantee insurance provider for the substantial amount lost due to the theft. In their supporting documents, the bank provided a detailed schedule of all fraudulent transactions carried out on different dates, outlining the total loss suffered over time. However, when their insurance provider reviewed the claim, they applied policy wording that stated each fraudulent transaction constituted a separate claim, rather than considering the cumulative loss as one incident. This interpretation resulted in the deductible - amount that an insured party must pay out of pocket- being applied to each individual transaction, drastically reducing the recoverable amount to a fraction of the total loss. The bank, faced with an unexpectedly low payout, found itself at a disadvantage despite the extent of the fraud. Fortunately, the bank was represented by a leading international broker, who intervened and argued that the deductible should apply to the overall loss, rather than each instance of fraud separately. Following extensive negotiations, an ex-gratia payment was made—a discretionary settlement that technically did not meet the insurer’s policy conditions but was paid out due to broader considerations. 𝗞𝗲𝘆 𝗟𝗲𝘀𝘀𝗼𝗻𝘀 𝗳𝗿𝗼𝗺 𝘁𝗵𝗶𝘀 𝗖𝗮𝘀𝗲 𝟭. 𝗨𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘁𝗵𝗲 𝗙𝗶𝗻𝗲 𝗣𝗿𝗶𝗻𝘁 – This case highlights the importance of fully comprehending the wording of your insurance policies, particularly how losses are categorized or defined. 𝟮. 𝗣𝗼𝗹𝗶𝗰𝘆 𝗜𝗻𝘁𝗲𝗿𝗽𝗿𝗲𝘁𝗮𝘁𝗶𝗼𝗻 𝗠𝗮𝘁𝘁𝗲𝗿𝘀 – The difference between treating losses as cumulative versus separate incidents can significantly impact claim recoveries. 𝟯. 𝗘𝘅𝗽𝗲𝗿𝘁 𝗥𝗲𝗽𝗿𝗲𝘀𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻 𝗜𝘀 𝗖𝗿𝘂𝗰𝗶𝗮l – Having an experienced insurance broker or risk advisor can be invaluable in navigating technical policy disputes. 𝟰. 𝗢𝗿𝗴𝗮𝗻𝗶𝘇𝗮𝘁𝗶𝗼𝗻𝘀 𝗠𝘂𝘀𝘁 𝗣𝗿𝗼𝘁𝗲𝗰𝘁 𝗧𝗵𝗲𝗶𝗿 𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁𝘀 – Businesses should proactively review their policies and negotiate clearer terms with insurers to avoid unfavorable interpretations at the time of a claim. This case serves as a reminder that corporations and individuals must ensure their insurance coverage truly aligns with their risk exposure. Otherwise, policy limitations can result in unexpected losses when they need protection the most. #𝗡𝗼𝗯𝗼𝗱𝘆𝗜𝗻𝘀𝘂𝗿𝗲𝘀𝟰𝗙𝘂𝗻 #InsuranceNuggets #Claims4U

INSURERS: THE NEED FOR A STRATEGIC SHIFT The insurance and reinsurance industries are facing an era of unprecedented climate-driven challenges. Extreme weather events, regulatory pressures, and financial volatility are making traditional risk management approaches increasingly ineffective. For decades, insurers have taken a defensive stance, reacting to disasters, adjusting premiums after major losses, and, in some cases, withdrawing from high-risk markets altogether. However, with the frequency and severity of climate-related losses accelerating, this reactive approach is no longer sustainable. To remain competitive and financially resilient, insurers must shift from passive risk response to active risk anticipation—from defence to offence. By leveraging Riskthinking.AI’s Climate Digital Twin (CDT™), insurers can transform their risk assessment strategies, moving beyond outdated models that rely solely on historical data. Instead, they can adopt forward-looking, real-time, data-driven climate intelligence, ensuring they remain profitable while playing a crucial role in global climate adaptation.