A sustainable flywheel: opportunities from insurance' business to support nature-based solutions for climate adaptation

Abstract

Climate related risks generate significant economic, social and humanitarian losses, rising in 2018 to US$ 160bn for overall losses and US$ 80bn for insured losses (Löw 2019). In a 2 °C degree warmer world, the climatic risks are highly likely to increase and thus, the losses associated with those risks (e.g. decrease in crop production due to low rainfall and the inherent eurers are considering insurance value of NB conomic losses) (Masson-Delmotte et al 2018). In France, climate risk related insured losses are expected to raise up to 50%. Caisse Centrale de Réassurance estimates that climate related risks will be responsible for a rise of 35% of average annual losses and 15% due to concentration of assets in risk-prone areas (Moncoulon et al 2016). Because economic and human losses might increase in a changing climate, the question of insurability of risks and affordability of insurance become key. High risks might become uninsurable and the costs of insurance contracts might upsurge. Simultaneously, the protection gap, the discrepancy between economic losses and the claims covered by insurance, has increased. The economic growth of developing and developed countries has boosted the emergence of insurance policies as well as the rise of insured values (Staib and Puttaiah 2018). The resilience of our societies to both frequent and extreme events require to close the protection gap through strong risk transfer mechanisms. The threats of climate change can lead to opportunities by the (re)insurance sector through their involvement into nature-based loss prevention for climate change adaptation (CCA). The opportunities are framed within the sustainable flywheel business model for the (re)insurance future (figure 1). The flywheel is a virtuous circle that leverages on (re)insurers' risk modelling expertise to increase knowledge on the consequences of climate change on hazards and on nature-based solutions (NBS). This will maintain affordability of insurance by limiting increasing damage and the industry further participates in investments and partnerships for loss prevention.