The Insurance Council of Australia (ICA) has released a report on nature and insurance, highlighting why nature is important for insurers in the context of increasing nature-related risk.
The paper “Advancing Resilient Nature-Positive Insurance in Australia”, explores the concept of ‘nature-positive insurance’, what this means, and the opportunities for Australian insurers.
Insurance companies are directly dependent on nature through their operations, and indirectly through their policyholders’ and investees’ dependencies, which directly affects the risks and returns associated with insurance policies and investment portfolios, says the paper.
Australia’s agriculture; forestry; construction; energy; waste and water utilities; mining; real estate and manufacturing sectors have the most material dependencies on nature and the services it provides.
Nature loss exposes insurers to increased risk
Five of the top 10 more severe global risks over the next decade are environmental, says the paper. Nature loss exacerbates these risks for insurers by increasing the frequency and severity of extreme weather events and degrading the resources and services upon which economies and insurable assets rely.
These threats have been directly realised by the Australian insurance sector. Insurers have experienced an 8% increase in gross claim costs associated with recent adverse weather events in New South Wales (NSW) and South-Eastern Queensland (QLD). In 2022 alone, there were more than 302,000 disaster-related claims lodged from four declared insurance events across the country, costing A$7.28bn ($4.9bn) in insured losses.
Next 10 years are a critical window
A failure to halt and reverse nature loss will exacerbate the impacts of climate change and the insurance protection gap. The next 10 years offer a critical window for Australian insurers to play their part in mitigating nature-related risks and facilitating the nature-positive transition. Insurers do not need to wait for regulatory and policy environments to fully develop to enable change. Transformation of existing business models will be required to achieve a nature-positive future and there is much that can and must be actioned.
The paper concludes with practical steps for Australian insurers to advance nature-positive insurance practices. These steps are adapted from the UNEP Finance Initiative’s “Nature-Positive Insurance: Evolving Thinking and Practices” report and research undertaken by the Association of British Insurers.
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Examples of how insurers can advance nature-positive insurance practices
1. Embed nature into business strategy
Insurers can start embedding nature-positive insurance principles into their business by understanding nature-related risks and opportunities across their entire value chain, and by integrating nature considerations into governance, strategy, risk management, financial decision-making, and reporting processes.
2. Integrate nature into products and services
Insurers can facilitate the protection and restoration of nature through the products and services they offer, including innovative commercial services to protect and underwrite valuable natural assets; product incentives to encourage policyholders to adopt sustainable practices and/or reduce their exposure to extreme weather and other natural hazards; sustainable claim options; and establishing underwriting and investment criteria to screen for nature-negative activities.
3. Engage and collaborate with key stakeholders
Insurers can play a pivotal role in advancing the nature-positive transition through practising insurer and investor stewardship to influence clients and investees to take actions aligned with halting and reversing nature loss. Insurers can also advocate for the development of standardised nature metrics for underwriting activities, and best practice guidelines or frameworks for nature target setting for insurers.
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This paper builds on the ICA’s recent paper “Valuing Nature for a Resilient Future”, which explores the key links between insurance and nature, including how nature-related risks and opportunities can manifest.