Climate Risk
Climate Risk
April 18, 2025
Sanima Reliance Life Insurance Ltd
Climate Risk
Climate risk refers to the potential for adverse effects on human and natural ecosystems caused by the direct and indirect impacts of climate change. It is no longer a distant issue, it has become an immediate and intensifying challenge that affects not only the environment but also the financial health and safety of individuals and organizations worldwide
Risks:
- Policyholder health risk: heat waves, pollution, and new diseases increase mortality rate among policyholder.
- Investment portfolio risk: devaluation of invested assets due to natural disaster.
- Policyholder behavior changes risk: income depletion caused by climate-related disasters can policyholder lead to financial priorities.
- Operational disruption risk: damage to physical infrastructure and technology system due to climate related calamities such as floods, storms, earthquake etc.
Impacts:
- Increase in claim payouts.
- Hike in premium price.
- Decline in investments returns
- Increase lapse ratio and policy surrenders
- Reputational damages
- Noncompliance of regulatory requirement.
- Significant operational recovery cost burden
- Adverse effect on financial performance and solvency position.
Mitigations:
- Manage investment portfolios: The company has set the target to investment by geographically diversify, climate adaptive technologies/ industries, companies having disclosure for climate risk, etc.
- Climate-resilient underwriting practices: Company shall implement underwriting practices that consider climate risk, such as assessing policyholder exposure to flood zones, wildfire – prone areas or extreme weather events.
- Transfer the risk to reinsure: Company shall take catastrophic reinsurance to mitigate the exposure to catastrophic losses caused by climate related events.
- Good internal practice: Company shall promote good internal practice to contribute to climate change related risk such as being gradually more energy efficient, waste reduction and disposal, and promoting green transportation, paper consumption reduction, environment friendly corporate social responsibility.
- Monitor and evaluate: Company shall continuously monitor and evaluate the effectiveness of climate change risk management strategies and adjust them as per necessity based on current scenarios and future forecast.
Recognizing the increasing significance of climate-related risks, our team remains committed to provide policyholders with the necessary guidance and support regarding climate-related risks.
