The concept of nature-positive insurance is building momentum in Australia as a way to address insurability challenges, but work must be done more quickly to integrate these practices more broadly, a report published Friday urged.

The report, prepared by EY and commissioned by the Insurance Council of Australia (ICA), urged Australian insurers to act on the opportunities and address challenges associated with becoming nature positive.

Since 2019-20, insurers have paid out almost A$18 billion ($12 bln) in natural disaster claims from 14 declared catastrophes and seven significant events, ICA CEO and Executive Director Andrew Hall highlighted in the report’s forward.

“These events are having a direct impact on the cost of insurance premiums, particularly for vulnerable communities in high-risk locations. This, in turn, widens the protection gap, leaving many Australians without the financial protection of insurance coverage,” he wrote.

“Activity that supports and safeguards nature and nature resilient assets are emerging as effective strategies for insurer to protect insured assets and build resilience to climate change impacts.”

The report said global awareness of nature flowing through to financial risks has accelerated, which has increased expectations for business to report on how they are managing these risks and implement nature-positive strategies.

However, it noted there is a severe lack of private sector finance into nature-positive investments, around $35 billion globally it estimated, compared to the $5 trillion that is being directed towards nature-negative investments.

Insurers can play a critical role in scaling capital flows to help push the “radical transformation” required to achieve a resilient nature positive economy, the report said.

WHAT TO DO

It provided examples of some of the steps different Australian insurers can take to advance nature-positive insurance.

For home and property insurers, ICA suggested integrating nature data into climate modelling projections to support adequate pricing and reserves for futures claims.

Insurers in this space can also encourage nature-positive behaviours among its policyholders by offering discounts to those using resilient and sustainable building materials.

Motor insurers, meanwhile, can continue to favour electric and hybrid vehicles through discounted premiums or comprehensive coverage for new technologies such as battery systems, the report suggested.

General and commercial insurers face a more complex task, given they are more likely to cover businesses that have a much higher impact on nature.

The report suggested reducing exposure to high-impact sectors and diverting capital toward businesses that operate sustainably.

Insurance products might be structured to incentivise risk reduction and the adoption of nature-positive practices across priority, high-impact sectors such as mining, agriculture, energy, construction, or manufacturing.

Australian insurers should engage with actors across policy and business to promote policy and regulation that aligns with nature-positive outcomes, it said.

This could include advocacy for improved land-use planning and management to protect people, homes, and business from natural hazards, investing in nature-based solutions, and integrating nature considerations into financial decision-making across the economy.

An example of a positive investment in NBS the report raised was restoring waterways and wetlands in flood-prone regions in southeast Queensland and northern NSW, which can provide better protections for communities and households, reducing underlying risk, which can also moderate premiums.

ICA also said Australia’s Nature Repair Market can create opportunities for insurers to invest in NBS that mitigate risk exposure and enhance native biodiversity.

Biodiversity certificates can provide insurers with a credible tool for assessing and disclosing biodiversity outcomes of their investments into NBS, it said.

RESIDUAL IMPACTS

The report said that offsetting residual impacts associated with underwriting will likely become a crucial part of an insurer’s longer-term nature positive strategy, particularly for services that lack a feasible technological alternative to avoid negative impacts entirely, such as critical minerals mining.

However, it emphasised nature-positive insurance can go beyond offsetting, stressing the importance of the mitigation hierarchy principles.

It said nature positive underwriting policies should seek to align with sector roadmaps, such as those under development or endorsed by the World Business Council for Sustainable Development.

ICA urged insurers to embed nature into their business strategy, into their products and services, and collaborate with key stakeholders.

There is also a need for greater transparency on nature-related impacts, as well as development of standardised metrics for measuring and reporting those impacts, it said.

By Mark Tilly – mark@carbon-pulse.com

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