Cluster Financial services industry

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Financial services industry
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2019 Monitoring Report on the German Strategy for Adaptation to Climate Change

Financial services industry

Insurance companies, credit institutions and other actors in the financial sector are variously confronted with the risks and impacts of climate change. Their clientele, in other words, private individuals and companies, is linked closely to the financial sector in terms of third-party finance and insurance policies. This is why climate risks borne by business partners can easily become risks for the financial institutions themselves.

The business activity of insurance companies is based on the fundamental principle of the collective assumption and sharing of risks. The success of an insurance business is based on the prerequisite that risks can be assessed realistically and that the extent of potential damage can be estimated statistically in order to have the necessary foundation on which to base the calculation of the relevant insurance premiums required. This is why insurance companies have for some time thought hard about the potential impacts of climate change and developed strategies enabling them to cope with major and more frequent damage events in the future.

By contrast, credit institutions consider the physical risks of climate change as controllable, at least for the near future. Adverse effects on the solvency and liquidity as well as the security of debtors or the possibility of losses in the value of asset investments have so far, from their point of view, been considered less risky than from the point of view of insurance companies. This is true in particular for regional credit institutions which are active almost exclusively within Germany, handling a major part of the domestic credit business. As far as credit institutions are concerned, their risks have more to do with regulatory risks, arising from ever-increasing stipulations regarding climate protection to be observed by their clients or in respect of reputational risks which can go hand-in-hand with climate-damaging projects.  

Effects of climate change

Things might become expensive for insurance companies (FiW-I-1)

Risk awareness – key to adequate provision (FiW-I-2)