Why nature matters: Nature-related risks and opportunities for insurance underwriting

5 September 2022 – The University of Cambridge Institute for Sustainability Leadership’s (CISL) ClimateWise has published a new report on Nature Insurance. 

Download the report.

This report seeks to raise awareness of the relevance of nature-related risks and opportunities for underwriters to explore how the insurance industry can properly account for nature in decision-making processes. 

According to a recent global survey of the insurance industry, half of the re/insurers surveyed believe that nature-related risks are material for their underwriting business. Notwithstanding this perceived materiality, and according to the findings of a recent NGFS-INSPIRE report, nature-related risks are not currently being assessed in underwriting by the majority of re/insurance industry participants due to a lack of awareness and understanding of nature-related risks; data and information; regulatory and supervisory guidance; technical capacity and skills; and mandate/buy-in from Executive Management. 

This paper summarises key concepts and introduces a framework for identifying and assessing nature-related risks in the re/insurance industry. It also discusses four different approaches that insurers can adopt to reduce the impact on nature or contribute to its protection and restoration:  

  1. Incentivising nature-positive behaviours with clients and customers; 

  1. Innovating in asset protection; 

  1. Facilitating capital flows; and  

  1. Collaborating with governments 

Building a nature-positive insurance industry could result in the following: 

  • the development of new re/insurance products and services to inform and support nature-related risk management;  

  • the development of new markets and innovative financial products in partnership with wider financial services;  

  • the development of guidance for public and private adaptation investment in nature-positive measures that consider the long-term benefits of a resilient society, business and economy; and 

  • the ongoing sustainability of the insurance business model based on risk pooling and risk diversification for insurers, as well as potentially more affordable premiums or continued capacity for nature-positive clients. 

The insurance industry has the opportunity to revisit and redefine its role in society to support risk management through proactive nature-positive activities, rather than simply responding to claims following a disaster or loss. 

Commenting on the release of the paper, Dr Jamie Pollard, Climate and Resilience Hub at WTW, said: 

“A combination of acute hazard events, chronic climate-related pressures and human activity are putting critical ecosystems at increasing risk of collapse. As well as clearly defining these risks, this timely report by ClimateWise Nature and the Insurance Task Group successfully articulates the nature-positive actions that the insurance industry can, and should, promote to enhance the resilience of the world’s natural ecosystems.”  

Citing this report 

University of Cambridge Institute for Sustainability Leadership (CISL). (2022). Why nature matters: Nature-related risks and opportunities for insurance underwriting. Cambridge, UK: University of Cambridge Institute for Sustainability Leadership.