Canada’s top financial regulator says the insurance industry has time – though not much – to strengthen its defenses against climate risk.
Peter Routledge (pictured), superintendent of financial institutions at OSFI, emphasized that while climate change is reshaping financial risks, it does not yet present an immediate threat to the stability of the insurance and financial sectors.
“There should be a lot of urgency around the climate issue… but within this sector, we have time. Not a lot of time, but we have time to get the measurement right so that we make good decisions down the line,” Routledge said at the National Insurance Conference of Canada in Gatineau.
The comments came as part of OSFI’s work under Guideline B-15, which was developed to instill greater discipline in how insurers and banks measure and manage climate-related risks. Routledge explained that as forward-looking regulators, OSFI and its provincial partners want to ensure financial institutions are ready for the inevitable changes in how capital is allocated as the world warms.
A key achievement, Routledge stressed, has been federal–provincial collaboration on climate scenario exercises. He pointed to the joint effort with Quebec’s Autorité des marchés financiers (AMF) as an example of regulators working “as equals” to embed climate risk analysis across Canada’s financial system.
“I’m really proud of the federal–provincial coordination that we’ve established with our friends and colleagues at the AMF in Quebec,” Routledge said. “One of the things I’m most proud about as superintendent is having done that together.”
OSFI’s analysis has led to several important conclusions, Routledge explained. First, climate change is “a financial risk” for the institutions under its watch – meaning the implications are tied directly to balance sheets, capital flows, and risk models rather than abstract environmental concerns.
Second, while climate-related losses are rising – and doing so in a “non-linear” fashion – they have not yet reached a point where they threaten the overall solvency of federally regulated insurers or banks.
“The costs we’re seeing are rising. They’re rising in a non-linear way. That means we have to be attentive to it. [But] it is not an immediate threat to financial resilience,” Routledge said.
For the next three to four years, OSFI’s focus will be on refining measurement under Guideline B-15. Routledge said the goal is to ensure boards of directors and senior management teams have reliable data to guide capital allocation decisions.
“Boards are smart. They care about shareholder value. So do senior management teams. They’ll make smart capital decisions,” he said.
In his view, that process – grounded in better measurement and disclosure – will allow Canada’s financial sector to adapt in time, without the need for panic.
Routledge said the key to resilience lies in how insurers and banks integrate climate data into financial decision-making. He pointed to property and casualty (P&C) insurers as an early example of the industry adapting to climate realities.
“In this climate setting, we learned that three-quarters of P&C insurers are already using geolocation data to evaluate financial risk in their products. Only 25% of banks do that,” he noted.
The difference, he explained, reflects the P&C sector’s frontline exposure to climate impacts such as floods, wildfires, and severe storms. Because those losses materialize quickly and directly, P&C carriers were among the first to adopt advanced analytical and statistical techniques to measure risk more precisely.
Beyond physical risks, Routledge also pointed to transition risks as another looming challenge. As the global energy mix evolves, the Canadian economy will face uneven and potentially abrupt shifts.
“Warming will, over time, increase transition risk, but the increase in transition risk is unlikely to be monotonic or linear. It’s likely to be non-linear,” he said. “In other words, you’ll see a more sudden shift in energy mix, and Canada needs to be at the forefront of understanding how that develops.”
For OSFI, the role is not to dictate investment choices but to ensure the analysis underpinning them reflects reality. “Our job really is to promulgate common-sense financial analysis around climate risk,” Routledge said.
He added that as more robust data filters up to boards and senior management teams, profit-maximizing behavior will align naturally with resilience. “Boards of directors and senior managers will make smart decisions about managing that risk,” he said. “And I think the company will serve the country over time, [and] will be more resilient to climate change.”
