Data Hub

Regulators set up climate task force to help actuaries

elias

Elias Omondi, ESG Taskforce chairman. PHOTO | POOL

BDgeneric_logo

Summary

  • The taskforce formed by The Actuarial Society of Kenya (Task) and Financial Sector Deepening (FSD) Africa, and funded by the UK government through UK Aid, seeks to manage financial threats.
  • The insurance sector is highly exposed to economic shocks because of insuring companies with high levels of ESG risks.
  • Elias Omondi, the Task chairman, says insurers are still in the infancy stage of understanding ESG issues and their application.

Actuaries have formed a task force to train insurers and other professionals on environmental, social, and governance (ESG) risks.

The taskforce formed by The Actuarial Society of Kenya (Task) and Financial Sector Deepening (FSD) Africa, and funded by the UK government through UK Aid, seeks to manage financial threats.

The insurance sector is highly exposed to economic shocks because of insuring companies with high levels of ESG risks, for instance, in the oil and gas industry, huge carbon emissions emitters, and causing damage to soils, water, and vegetation.

Elias Omondi, ESG Taskforce chairman, says insurers are still in the infancy stage of understanding ESG issues and their application. Therefore, the actuarial task force will identify and monitor risks and opportunities related to ESG issues and address uncertainties that may arise.

“We have come up with workstreams that will deal with training and awareness on what ESG risks are and what opportunities arise. We are also engaging policymakers and regulators on issues they need to look at to influence financial changes,” said the chairman of ESG Taskforce.

Actuaries analyse financial costs of risk and uncertainty to determine the premiums of policies. The professionals have raised the alarm on risks that may be thrown to the insurers if companies do not comply with ESG issues, threatening the firms’ returns and continuity.

Corporate governance and social risk factors affect insurers’ customer and employee base, hence impairing their financial strength. Climate disasters can also lead to increased higher claims with higher severity and frequency.

As a result, the ESG taskforce will research physical risks that relate to events such as drought and floods; and transitional risks related to policy and technological changes.

The research will also include liability risks arising from those who will need to be compensated out of a shift to practices that comply with the new guidelines.

“Most insurers do not consider the impact on the environment when it comes to underwriting decisions. Most will be thinking about getting money and premium and forget about what will happen,” Mr Omondi said.

“This is what we want to start inculcating in their minds. They need to know there are risks that whenever they protect a particular front, they might be destroying the environment.”

Some companies especially listed firms were already ahead of the curve in ESG reporting processes due to a shift in investor focus.

Investments in new technology, renewable energy sources, replacing processing plants or manufacturing processes for cleaner alternatives, planting of trees to offset emissions or social programmes like sanitation and water are expected to come with high financial costs and a hit on the firms’ balance sheet.

The taskforce chairman says the companies cannot shield their balance sheets by overlooking ESG integration.

“We can’t wait until there is nothing to insure. You can just continue doing the same thing. At the end of the day, there will be no environment, people, or resources to ensure. So we have to look at how then we balance this out,” he said.

The ESG taskforce is also pushing for tax incentives to cushion companies.

“If these (ESG) policies are implemented there may be shocks within the company’s processes. Out of integration of ESG, they should be some benefits that come their way like tax relief, green government bonds and interest rate higher,” he said.

[email protected]