Extreme weather events and biodiversity loss create major risks for Australian insurers, but also opportunities to invest in projects and instruments that mitigate those risks, the Insurance Council of Australia (ICA) said Friday.
“Climate change, pollution, and poor land-use planning decisions are contributing to ecosystem and biodiversity losses in our natural environment, with compounding economic and societal impacts,” ICA CEO Andrew Hall wrote in the foreword of the report ‘Valuing Nature for a Resilient Future’, released Friday.
General insurers in Australia pay out A$188 million ($121 mln) in claims to businesses and households every working day, according to the report commissioned from consultants EY.
Bushfires, droughts, floods, and other nature-related disasters add to that, with insurers facing physical, transition, and structural risks from nature loss and climate change.
But there are also significant opportunities for insurers in addressing nature-related risks, ICA said.
Those include innovating in asset protection, such as insurance for providers and users of nature positive credits or innovations in ecosystem insurance, like specialised cover for environmentally significant sites that reflect associated revenue streams such as tourism or hospitality.
Insurers can also get involved in financing through capital flow by scaling up investment in nature positive businesses or projects alongside targets to reduce nature damaging activities, by underwriting or investing in sustainable or green bonds, or by investing in high integrity nature positive credits and carbon offsetting markets, the report said.
Nature risk also offers the opportunity for insurers to extend their net zero strategies into nature positive strategies and actions by reviewing net zero targets and transition plans for biodiversity impact, ensuring any carbon credits have a biodiversity co-benefit, and addressing potential trade-offs and synergies between net zero and biodiversity actions, said ICA.
Incentivising nature positive behaviours with clients and consumers and collaborating with government, industry, and other stakeholders on issues like improving data sets and sharing best practice are other opportunities for Australian insurers, according to the report.
As a first step, though, insurance companies should get involved with initiatives such as the Taskforce on Nature-related Financial Disclosres (TNFD), it said.
“This report is an important tool for the insurance industry in outlining the risks to Australia’s natural environment and shows that insurers have a critical role to play in protecting nature and in turn protecting their customers,” CEO Hall said in a statement accompanying the report.
“Underwriting and investing in nature can play a key role in building resilience to climate change in landscapes and communities. Nature-based mitigation solutions like reforestation and wetlands restorations can be used to reduce the incidence and impact of flooding, landslides, and other disasters,” he added.
“Where initiatives like these serve to reduce risk, they also serve to better protect communities and ultimately moderate rising pressure on insurance premiums.”
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