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Nature-related risks and opportunities: The new frontier for insurers

By Jamie Pollard , Sarah Conway and Maya Dhanjal | September 13, 2022

New report by the University of Cambridge Institute for Sustainability Leadership captures nature-related risks and opportunities for the insurance industry
Climate Risk and Resilience

Tackling climate and nature emergency

Recognition that climate-related risks pose a fundamental challenge to the global economy in general and to the financial and insurance industries in particular has been growing rapidly over the past decade. Less widely reported is the extent to which we face not one but two crises that are inextricably linked. We are in the middle of a climate and nature emergency, with the climate crisis driving nature’s decline, and the loss of wildlife leaving us ill-equipped to reduce carbon emissions and adapt to change. We cannot solve one without tackling the other.

This report demonstrates how nature risks translate to business risks, and the potential roles for the insurance industry in enabling a nature-positive future.”

Sarah Conway | Director and Ecosystem Resilience Lead at WTW’s Climate and Resilience Hub

Sarah Conway, Director and Ecosystem Resilience Lead, Climate and Resilience Hub at WTW said: “Natural capital assets underpin society and the global economy – the World Economic Forum estimates that US$44 trillion, equivalent to more than half the world’s total GDP, is moderately or highly dependent on nature. This concise and thoughtful report clearly demonstrates how nature risks translate to business risks, and the potential roles for the insurance industry in enabling a nature-positive future.”

The financial risks and associated economic consequences of climate change that are already being felt will only get worse on a generational timescale, demanding swift and permanent changes now to the way in which firms organise, operate, and invest.

This awareness has now crystallised into emerging regulatory and legal requirements for companies and institutions; in many major financial jurisdictions, such as the US and UK, companies and institutions are increasingly being mandated by governments, central banks, and financial supervisors to identify and mitigate climate-related risks in their operations and portfolios.

Last year, G7 leaders announced that “our world must not only become net zero, but also nature positive, for the benefit of both people and the planet,” signalling a paradigm shift in how the world views nature. Furthermore, a key outcome from the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report, and of the latest round of climate negotiations at COP26 in Glasgow, is the need to address nature-related risks alongside climate-related risk. Indeed, the atmosphere is just one part of our planet’s integrated natural system, and climate risk is actually just a subset of nature risk and cannot be managed alone.

The University of Cambridge Institute for Sustainability Leadership (CISL) report “Why nature matters: Nature-related risks and opportunities for insurance underwriting” explores this topic in more detail, introducing a framework for identifying and assessing nature-related risks in the re/insurance industry and discussing the approaches that insurers can adopt to reduce the impact on nature and/or contribute to its protection and restoration.

Towards a nature-positive future

A “nature-positive” future is one in which nature – species and ecosystems – are being restored and regenerated, ultimately enhancing the resilience of our planet and societies. Making this future a reality will require commitment and action across society to reverse current trends and make nature a central consideration in corporate and government decision-making processes and long-term planning. The insurance industry has a particular interest in supporting nature-positive actions since the existence of healthy ecosystems can help to reduce risk that would otherwise be borne by the industry.

More than this, the insurance industry is uniquely placed to deliver a range of nature-positive solutions given their role in closing the protection gap and their position in the global market to place risk at competitive rates. The report identifies several potential approaches, including incentivising nature-positive behaviours with clients and customers, innovating in asset protection, facilitating capital flows and collaborating with governments.

A combination of acute hazard events, chronic climate-related pressures and human activity are putting critical ecosystems at increasing risk of collapse.”

Dr Jamie Pollard | Senior Associate at WTW’s Climate and Resilience Hub

Dr Jamie Pollard, Senior Associate, Climate and Resilience Hub, 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.”

Building a nature-positive insurance industry could, according to this report, lead to a range of outcomes, from the development of new products and services that inform nature-related risk management to ensuring the ongoing sustainability of the insurance business model based on risk pooling and risk diversification. Indeed, there is the opportunity here for the re/insurance industry to revisit and redefine its role in society to support risk management through proactive nature-positive measures, and not simply by reactively responding to claims following a disaster or loss.

Nature-positive initiatives at WTW

WTW’s contribution to this report comes through its role as co-chair of the cross-industry Nature and Insurance Task Group convened by the CISL. WTW has a proven track record for developing award-winning and innovative solutions using cutting-edge analytics for nature-related risks and subsequent opportunities. For instance, drawing on risk and financial modelling expertise that is core to our business, WTW and The Nature Conservancy found that ecological forestry techniques could reduce residential insurance premiums by 41 per cent in wildfire risk areas in northern Sierra Nevada. This work not only quantifies the financial value of nature-positive behaviours, such as eco-forestry, but also strengthens the case for the risk reduction value of key ecosystems.

Within WTW’s Climate and Resilience Hub, we bring a risk lens to the full spectrum of the climate and nature emergency.”

Dr Simon Young | Senior Director at WTW’s Climate and Resilience Hub

Dr Simon Young, Senior Director, Climate and Resilience Hub at WTW said: “Within WTW’s Climate and Resilience Hub, we bring a risk lens to the full spectrum of the climate and nature emergency. Passing our planet - land, ocean, freshwater and atmosphere - to future generations in a state that is fit for purpose is a risk management problem, and requires holistic approaches founded in integrated analytics and innovative solutions which are at the core of the insurance industry skillset. We are excited to lead the industry in unlocking these tools and solutions”.

In addition to capturing the risk reduction value of certain ecosystems, the tools and techniques of insurance can be used to finance ecosystem restoration and recovery following extreme event impacts. This approach places natural capital alongside more conventional critical infrastructure assets like ports, roads, and public buildings. The acclaimed Mesoamerican Reef Insurance Programme, now in place for its second year, pre-arranges funds for reef restoration work following damaging hurricane events. These restoration activities help to kick-start reef recovery following these events.

Also, by developing the business case for ecosystem protection and restoration – through quantifying the protective value and providing financial support for recovery – governments are keen to include natural capital assets in their public accounts and to channel financial flows into the protection of these assets. For example, as part of a debt restructuring and 20-year Blue Bond issuance in Belize in 2021, Belize agreed to use part of the debt relief to pre-fund a $23.4 million endowment supporting marine conservation.

This commitment includes spending $4.2 million per year on marine conservation and expanding Belize’s marine protected areas from about 16 percent to 30 percent by 2026. Wrapped into the debt servicing payments that Belize makes on a semi-annual basis is the premium for a parametric insurance policy – a catastrophe or “cat” wrapper – which WTW designed and placed using innovative risk analytics. Under a triggering event (in this case a hurricane), the next semi-annual debt servicing payment is waived and is instead paid for via the parametric insurance pay-out. In this way, the loan terms and duration remain fully intact while the Government of Belize is free to focus resources on disaster response and economic recovery over the short and medium term.

What comes next…

With demand for an integrated nature-related risk management and disclosure framework growing, efforts to develop and test metrics are underway. One such initiative is the Taskforce on Nature-Related Financial Disclosures (TNFD). The TNFD is a voluntary international initiative that aims to provide a framework for how organisations can address environmental risks and opportunities and encourage integrated climate- and nature-related risk management and disclosures. It does so by building on the model developed by the Taskforce on Climate-Related Financial Disclosures (TCFD); TNFD will centre around the same four pillars of governance, strategy, risk management, and metrics and targets. The TNFD plans to test and refine its framework during 2022 and to launch in 2023. Although currently voluntary, it is expected that the disclosure of nature-related financial information will begin to be included in regulation over the coming years.

Looking forward, the CISL Nature and Insurance Task Group will be setting out a pragmatic pathway for the insurance industry to integrate and respond to nature-related risks and opportunities, ultimately enabling us to move towards a nature-positive future.


Senior Associate,
Disaster Risk Finance & Parametrics,
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Director and Ecosystem Resilience Lead
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Lead Associate, Ecosystem Resilience, WTW
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Related content tags, list of links Article Climate Risk Insurance Climate Change


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

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.

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