Insurance firms are struggling to meet a June deadline for new Bank of England (BoE) climate risk requirements, with many citing scenario analysis as their biggest challenge.
A survey of 67 insurance firms found that 69% expected climate scenario analysis would be the most time-consuming of the increased requirements set out in Supervisory Statement SS5/25, issued last December by the Prudential Regulatory Authority, the arm of the BoE supervising insurers and other financial institutions.
However, more than half of insurers (57%) said they were still reviewing the new rules, citing lack of time, resource or expertise, contributing to uncertainty over regulatory expectations.
SS5/25 is the first shift in climate risk requirements for UK-regulated banks and insurers since 2019 and raises expectations across in the identification, governance and management of climate risks.
Regulated firms are now expected to conduct tailored, regularly updated climate scenarios, also showing how outputs are used in strategy and risk management, with methodologies clearly documented.
Under SS5/25, insurance firms must also embed climate risk into their solvency and capital assessments, with boards expected to review material climate risks, also documenting climate risk appetite across business lines.
Further, the new requirements reframe how regulators view proportionality of climate risk, meaning expectations scale with exposure to climate risk, rather than size.
The survey – conducted by tax and advisory firm Crowe – found limited confidence in defining climate risk materiality and evidencing proportionality, as required under SS5/25. Only 14% of respondents said they feel “very confident” and 57% feel only “moderately confident”, citing gaps across existing processes.
