Insuring our environment: the dependency between nature and economic activity

From wildfires and extreme weather events to deforestation and reef destruction, we are seeing the fast deterioration of our natural environment. At Swiss Re, we believe investing in our natural capital is key to mitigating the impact of climate change, population growth and urbanisation.

Japan1 regards global environmental issues as one of the important areas of its diplomacy and is actively dealing with them by making a wide range of proposals. A supporter of the Kyoto Protocol to reduce greenhouse gases, a national strategy for biodiversity and adoption of the United Nations Sustainable Development Goals are a few examples of this.

The enabling role of insurance

Nature has proven its ability to self-heal, capture carbon and reduce the impact of weather-related disasters. But we need to support it, to ensure these critical eco-services are sustained.

Insurance has an important role in protecting natural assets. We already take out insurance for our personal and commercial property. We also insure our health and take out policies to protect our quality of life. Natural assets have huge environmental, economic, health and societal benefits and can be covered in the same way.

Some of the most effective prevention, damage mitigation and recovery strategies for the natural world take their inspiration from nature itself. Copying nature or designing solutions that integrate nature increases resilience against climate change and natural disasters. And insurance can protect and enhance the feasibility of many of these 'nature-based solutions' (NBS).

Insurance is also key to enabling investment in and scaling of green projects and infrastructure. These are key to helping us tackle environmental, economic and social challenges in a sustainable way.

At Swiss Re, we use data to better understand nature and build advanced risk tools that help us and our clients plan better and make more informed decisions. Using this information, we also work with governments to support their planning and, ultimately, strengthen their resilience strategies.

The dependency between nature and economic activity

The interdependency between nature and the economy is often under-appreciated. Natural capital and ecosystem services contribute significantly towards the national wealth of many countries. Swiss Re's recent Biodiversity end Ecosystems Services Index shows that 55% of global GDP is dependent on intact ecosystems.

Coral reefs, globally provide $36 billion a year in economic value through tourism, of which $19 billion is generated through 'on-reef' tourism such as diving and wildlife watching, while the remainder is generated from tourism in reef-related areas, such as ocean views, beaches and local seafood. An estimated 13% of Japan's tourism expenditure is related to reef activities, and worth almost USD 1b per year2.

Coral reefs in Okinawa have declined due mostly to human pressures, however there are still possibilities to restore coral reefs reducing the stresses that lead to degradation, and improve rehabilitation3.

In 2017, Swiss Re launched a new insurance solution to protect the Mesoamerican reef, and the associated tourism revenue, from storm damage. The product ensures that after a storm, funds are quickly disbursed, enabling community members to rapidly start restoration actions and minimise coral damage. This is a model that can be scaled up and replicated elsewhere, with fast pay-outs and underpinning rapid action that prevents further damage. This was recently proven during Hurricane Delta, when it hit Quintana Roo in October and triggered a payout that enabled the stabilisation of uprooted coral colonies, and the collection and replanting of broken coral fragments, many of which will now grow as new coral colonies – all in the eight days immediately following.

Building a more sustainable future

COVID-19 has taught us about the importance of having a comprehensive view on risks, being prepared for extreme events and investing in the right prevention system. As we look towards recovering from this crisis, we need to ensure we bring these lessons to bear in our climate adaptation strategies.

Our ability to shape a low-carbon future and build more sustainable economies depends on our ability to scale and accelerate nature-based solutions. We can only achieve this with investment in nature and ecosystem services, which insurance helps to protect and enable.

Find out more about how insurance can protect natural assets and enable nature-based solutions.

[1] https://www.mofa.go.jp/policy/environment/pdfs/jp_initiative_pamph.pdf

[2] Spalding, M., Burke L., Wood S.A., Ashpole J., Hutchinson J. and Ermgassen P. 2017. Mapping the global value and distribution of coral reef tourism. Marine Policy 82:104-113

[3] Omori, Makoto(2011) 'Degradation and restoration of coral reefs: Experience in Okinawa, Japan', Marine Biology Research, 7: 1, 3 — 12

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