Insurers innovating to address nature loss

Large-scale nature degradation and biodiversity loss are some of the most threatening risks facing the world, according to a new report by The Geneva Association.

In the lead-up to the 15th UN Convention on Biological Diversity, The Geneva Association has released Nature and the Insurance Industry: Taking action towards a nature-positive economy, a report offering insights on the impacts of human activity on nature and the profound inter- connectivity between nature loss and climate change. 

According to the report, the sustainability of natural capital is vital for socio-economic development and prosperity. Yet, it adds, nature has systematically been considered an externality – undervalued and mispriced by the public and private sectors. Since 2019, however, a number of flagship reports have presented clear and concrete evidence of the large-scale impacts of the pollution and depletion of natural capital due to human activity, as well as the significant implications this has for people and businesses. 

The Geneva Association points out that the World Economic Forum (WEF)’s 2022 Global Risk Report identified large-scale nature degradation and biodiversity loss as one of the five most threatening long- term risks facing the world in the next five to 10 years. Industries that are highly dependent on nature generate 50% of global gross domestic product (GDP), the three largest sectors being construction, agriculture and livestock, and food and beverages. Larger economies, in particular China, the EU and the US, have the highest absolute amounts of GDP in nature-dependent sectors. 

Increasing resilience

Importantly, according to the report, climate change and large-scale nature loss are interlinked from both cause and effect perspectives. It has been demonstrated that nature-based solutions both increase resilience to physical climate risks (climate change adaptation) and sequester carbon (climate change mitigation). At the same time, the large-scale deployment of new technological solutions for the decarbonisation of energy and other sectors to achieve net-zero targets comes with myriad risks, such as environmental and disposal risks, that could have profound impacts on nature. Addressing climate change and nature and biodiversity loss concomitantly with a system-based approach is therefore necessary if either is to be solved. 

External factors

The need to protect natural capital is gaining global attention, it adds, suggesting that a number of external factors are transforming nature-related risks and opportunities from a scientific and environmental issue to a core business issue: 

  •  the evolving public policy and regulatory landscape; efforts to quantify the financial risks associated with nature loss by the Task Force for Nature Related Financial Disclosure (TNFD); 
  • sustainable finance frameworks;  financial regulatory bodies’ increasing attention to the financial risks of large-scale nature loss; 
  • rising litigation; the incorporation of nature-related issues in corporate, sovereign and municipal credit ratings; 
  • and growing investor and shareholder awareness and actions. 

The Geneva Association suggests that these risks could impact (re)insurers in a variety of ways:

  • On the underwriting side, the scale and scope of nature-related risks may threaten insurability in property and casualty (P&C) insurance while there may be implications for longevity, mortality and morbidity rates on the life & health side. 
  • The changing landscape may render existing underwriting models obsolete, and a lack of data could be a major bottleneck to assessing and pricing risks and developing effective insurance solutions and investment strategies. 
  • Rising physical climate risks also pose threats to insurers’ investments, as well as their own real assets. 

Jad Ariss, managing director of The Geneva Association, said: “Insurance innovations to address nature loss, on both the investment and underwriting sides, are truly remarkable, the challenge for the industry is now to deploy them at scale. By continuing to form the right partnerships – within and outside of the industry – and apply their relevant expertise, insurers have the potential to make a major contribution to the nature agenda.” 

The author of the report, Maryam Golnaraghi, director Climate Change & Environment at The Geneva Association, added: “(Re)insurers are taking nature degradation and risks seriously and have started to invest in research, raise awareness and roll out innovative solutions.”

“However, the industry needs to better understand the materiality of these risks. Also, the large-scale deployment of new climate technologies for decarbonisation come with potentially serious environmental impacts, which need to be managed with a full life cycle view. (Re)insurers are well-placed to share their risk expertise and incentivise more sustainable behaviours.” 

To access the full report, click here.

Importantly, according to the report, climate change and large-scale nature loss are interlinked from both cause and effect perspectives. It has been demonstrated that nature-based solutions both increase resilience to physical climate risks (climate change adaptation) and sequester carbon (climate change mitigation).

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