Insurance as a Catalyst for Nature-based Solutions (NbS)

As part of BwB’s work on the DesirMED project, Heather Matson and Nuno Meira. have been looking at how 𝗶𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 could be used to 𝗶𝗺𝗽𝗿𝗼𝘃𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗿𝗲𝘁𝘂𝗿𝗻𝘀 𝗼𝗻 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗶𝗻 𝗻𝗮𝘁𝘂𝗿𝗲-𝗯𝗮𝘀𝗲𝗱 𝘀𝗼𝗹𝘂𝘁𝗶𝗼𝗻𝘀 (𝗡𝗯𝗦). While the primary focus has been the Mediterranean region, this issue is highly relevant for markets around the world.

𝗧𝗵𝗲 𝗰𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲

Traditional insurance models provide protection by attributing a clear financial value and insurable interest to covered assets. 𝗘𝗰𝗼𝘀𝘆𝘀𝘁𝗲𝗺𝘀 𝗮𝗻𝗱 𝗻𝗮𝘁𝘂𝗿𝗲 𝗽𝗹𝗮𝘆 𝗮 𝘃𝗶𝘁𝗮𝗹 𝗿𝗲𝗴𝘂𝗹𝗮𝘁𝗶𝗻𝗴 𝗿𝗼𝗹𝗲 𝗶𝗻 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗿𝗶𝘀𝗸 𝗮𝗱𝗮𝗽𝘁𝗮𝘁𝗶𝗼𝗻 𝗮𝗻𝗱 𝗺𝗶𝘁𝗶𝗴𝗮𝘁𝗶𝗼𝗻, protecting property, life, and businesses. However, applying traditional insurance models to often intangible ecosystem services presents significant challenges under current frameworks.

𝗛𝗼𝘄 𝗰𝗼𝘂𝗹𝗱 𝗶𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 𝗶𝗻𝗻𝗼𝘃𝗮𝘁𝗲 𝘁𝗼 𝗯𝗿𝗶𝗱𝗴𝗲 𝘁𝗵𝗶𝘀 𝗴𝗮𝗽?

We’ve been working on an 𝗜𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 𝗩𝗮𝗹𝘂𝗲 𝗙𝗿𝗮𝗺𝗲𝘄𝗼𝗿𝗸 that could help address this challenge and guide the development of new insurance products. The ideas we’ve been exploring include:

1. 𝗜𝗻𝗱𝘂𝘀𝘁𝗿𝘆-𝘄𝗶𝗱𝗲 𝘂𝗻𝗱𝗲𝗿𝘄𝗿𝗶𝘁𝗶𝗻𝗴 𝗴𝘂𝗶𝗱𝗲𝗹𝗶𝗻𝗲𝘀 𝗳𝗼𝗿 𝗡𝗯𝗦

‧ Given the broad benefits of ecosystem services and their common good status, should we establish industry-wide frameworks for valuing these services?

‧ Would creating standardised methodologies to recognise and validate the roles and benefits of ecosystem services make these ‘assets’ tangible from an insurance perspective?

2. 𝗠𝘂𝗹𝘁𝗶-𝘆𝗲𝗮𝗿 𝗽𝗼𝗹𝗶𝗰𝘆 𝘁𝗲𝗿𝗺𝘀

‧ Should we rethink the traditional one-year policy model?

‧ Would multi-year policies better align with the long-term nature of ecosystem services’ risk protection abilities?

𝗪𝗵𝘆 𝗶𝘀 𝘁𝗵𝗶𝘀 𝗶𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝘁?

The World Economic Forum has estimated that 𝗼𝘃𝗲𝗿 𝗵𝗮𝗹𝗳 𝘁𝗵𝗲 𝘄𝗼𝗿𝗹𝗱’𝘀 𝗚𝗗𝗣 𝗶𝘀 𝗺𝗼𝗱𝗲𝗿𝗮𝘁𝗲𝗹𝘆 𝗼𝗿 𝗵𝗶𝗴𝗵𝗹𝘆 𝗱𝗲𝗽𝗲𝗻𝗱𝗲𝗻𝘁 𝗼𝗻 𝗻𝗮𝘁𝘂𝗿𝗲 𝗮𝗻𝗱 𝘁𝗵𝗮𝘁 𝗽𝗿𝗼𝘁𝗲𝗰𝘁𝗶𝗻𝗴 𝗯𝗶𝗼𝗱𝗶𝘃𝗲𝗿𝘀𝗶𝘁𝘆 𝗶𝘀 𝗰𝗿𝘂𝗰𝗶𝗮𝗹*. Finding ways to facilitate investment in NbS that will help this economic output adapt to or mitigate the impacts of climate change and risks to biodiversity is an 𝘂𝗿𝗴𝗲𝗻𝘁 𝗻𝗲𝗲𝗱 𝗮𝗻𝗱 𝗮 𝗵𝘂𝗴𝗲 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝘆.

𝗦𝗵𝗮𝗿𝗲 𝘆𝗼𝘂𝗿 𝘃𝗶𝗲𝘄𝘀!

 ‧ Have you seen or been working on any insurance innovations related to nature or NbS?

‧ What lessons or insights can we take, particularly for parametric products, in thinking about insurance for NbS?

We’d welcome your thoughts and feedback in the comments.

* WEF, “Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy”, https://shorturl.at/B3ew1