Nature and Insurance: Building Resilience in a Changing World
While much of the focus to date has been on climate change, there is increasing recognition across the Australian finance sector of the critical intersection of nature, insurance, and resilience.
In the lead up to the Global Nature Positive Summit in Sydney over 8-10 October, EY had the privilege of supporting the Insurance Council of Australia (ICA) shed light on both the challenges and opportunities facing our industry as we navigate the transition to a nature-positive economy.
?The importance of nature for Australia
Sadly, Australia has the highest known rates of recent species extinctions in the world, accounting for 35% of recorded mammal extinctions. One hundred ecological communities and more than 1,900 species are currently listed as vulnerable, endangered or critically endangered.
Australia’s biodiversity faces death by a thousand cuts. Once lost, our natural assets can never be recovered or replaced.
It’s also economic. More than four-fifths of Australia’s exports are highly dependent on nature, including agriculture, mining, energy, construction and real estate.
Research undertaken by the EY Net Zero Centre has found that taking decisive action to become a nature-positive economy could boost Australia’s national income by AU$47 billion by 2050 through the opportunities present in investing in restoration, protection and the enhancement of nature.
Shifting to a nature-positive approach could reduce risk and unlock new growth opportunities for Australia, particularly in industries that rely on nature to deliver.
The Inextricable Link Between Nature and Insurance
At first glance, the connection between insurance and the natural world might not be obvious. Yet, as the report reveals, these two realms are deeply intertwined. From underwriting agricultural businesses that depend on healthy ecosystems to investing in industries such as mining that rely on natural resources, the insurance sector's fate is intimately tied to the health of our planet.
This relationship has become increasingly apparent as we witness the impacts of climate change and nature loss. In recent years, Australian insurers have paid out nearly AUS$20 billion in natural disaster claims, a stark reminder of our vulnerability to extreme weather events. As our natural systems degrade, they exacerbate these risks, creating a feedback loop that threatens both our industry and the communities we serve.
?The Rise of Nature-Positive Insurance
In response to these challenges, we need to think about "nature-positive insurance" – an approach that looks to value, conserve, and restore biodiversity and ecosystem services through insurance strategies and practices. This isn't just about mitigating risk; it's about actively contributing to reversing nature loss, restoring and regenerating to create a world that lives in harmony with nature.
The report outlines several promising avenues for insurers to advance nature-positive practices:
1.????? Investing in nature-based solutions to protect insured assets
2.????? Developing innovative products to scale nature financing
3.????? Incentivising positive behaviours among policyholders
4.????? Integrating nature considerations into risk management
5.????? Forging public-private partnerships to enhance resilience
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?Real-World Impact
Throughout our research, we encountered exciting real-world examples of these principles in action. From parametric insurance policies protecting coral reefs to carbon credit insurance facilitating sustainable investments, insurers are finding creative ways to align their business models with nature-positive outcomes.
These innovations aren't just good for the planet – they make sound business sense. By reducing exposure to physical climate risks, tapping into new markets, and building long-term resilience, nature-positive insurance strategies can create value for insurers, policyholders, and ecosystems alike.
?A Call to Action
The next decade is critical for halting and reversing nature loss. Insurers have a unique opportunity to drive positive change. Here are some key steps insurers can take:?
1.????? Assess nature-related risks and dependencies
2.????? Integrate nature considerations into underwriting and investment decisions
3.????? Develop innovative products that protect and restore natural assets
4.????? Engage with policyholders and investees to promote sustainable practices
5.????? Collaborate with governments and other stakeholders to build resilience
?By taking these actions, insurers will not only safeguard our businesses but also contribute to a more sustainable, resilient future for Australia and the world.
?The path forward
The challenges are significant, but so are the opportunities. I encourage you to read the full "Advancing Resilient Nature-Positive Insurance in Australia" report to explore these crucial issues in depth.
As we look to the future, it's clear that the insurance industry has a pivotal role to play in building a more resilient, sustainable world.
What are your thoughts on the role of insurance in advancing nature-positive outcomes? I'd love to hear your perspectives in the comments below.
You can read the full report here .
#NaturePositiveInsurance #Sustainability #ClimateResilience #InsuranceInnovation
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Systems Thinker, Social Ecologist, Economist, Collaborative, Entrepreneurial, Policy Advocate, Market Transformer, training with nRhythm and Regenerative Capital Institute; Collaborator,
1 个月Michael Davis
Net zero emissions and nature positive development
1 个月Thanks so much for the insights Emma!?It's fantastic to see ICA and EY collaborating on this crucial issue. Some of the most threatened and degraded landscapes in Australia (and globally) are coastal wetlands, rivers and reefs, which are also linked to increasingly damaging floods, erosion and storm surges. So as reinforced by the ICA Nature Positive Insurance report, it is good business sense to start protecting, restoring and stewarding these areas to reduce risk and value degradation (not to mention the additional benefits in carbon sequestration, water quality, amenity and environmental productivity). I'm hopeful that insurers are now embracing nature as a material business issue, and collaborate broadly across the system to achieve shared value outcomes. For example, existing public programs for nature / biodiversity often have their potential impact limited by funding constraints (such as the NSW Biodiversity Conservation Trust). So how about insurers, lenders and developers come to the table with a blended finance approach to support this and achieve shared objectives for nature resilience, risk reduction, value preservation and conservation?
Sustainability/ESG Transformation | Customer Experience | Human-Centred Design | Senior Leadership – Creating a Better Future
1 个月Thank you for leading an interesting, lively discussion on this important and complex topic Emma Herd. The key question I took away is how to align incentives where the risks are high but no one is currently picking up ‘the tab’. Systems-based thinking and approaches will definitely be required.
Corporate, Captive, Commercial and Public Sector Risk Management/ Risk Transfer
1 个月Very insightful as always Emma Herd. Sorry I missed the conference. I am keen to discuss how we can adapt this framework to captive insurance solutions as I think there could be an important role for captives to play here.