How insurers benefit from a green balance sheet

Canada’s property and casualty insurers can grow their premiums and pay out fewer claims if they insure and invest in natural assets, including riverbanks, ponds and wetlands, according to case studies contained in the Intact Centre on Climate Adaptation’s new paper “Getting Nature on the Balance Sheet.” 

Shoring up these natural assets, which help with stormwater conveyance and/or drainage, will ultimately help to reduce costs related to flood damages, the report observes. 

“These [natural] services have financial value, and our accounting system just doesn’t account for them”, says Joanna Eyquem, managing director of climate-resilient infrastructure at the Intact Centre on Climate Adaptation at the University of Waterloo. “We’re not necessarily making sound economic decisions…because we’re not really actively investing often in our natural assets. The fundamental barrier at the moment is [the perception] that nature is not worth anything. [There’s this] concept that we just get all these services for free, hence we don’t value them.”  

The insurance industry can play a role in investing in nature-based solutions in a few ways, says Eyquem, by:  

1. Incentivizing municipalities to lead solutions on natural infrastructure 
2. Insuring natural assets in a coastal setting 
3. Insuring the construction of nature-based solutions 

Since the industry is particularly good at engaging municipal governments, there may be a space for insurers to lead municipalities in developing nature-based solutions and natural capital, Eyquem says.  

“There is an opportunity [for the industry] to incentivize municipalities to understand the role that nature-based solutions or natural infrastructure is playing and to make it attractive to them to put these measures in place and understand, a) the role of what they have and, b) what they can do to reduce risk using nature-based solutions.”  

The industry can also support their own financial bottom lines by insuring natural assets, particularly in coastal regions, says Eyquem, thus paying fewer claims and expanding their premium base.

“Insurance of natural assets in a coastal context [works] because the natural assets, like dunes or beaches, for example, are often directly protecting communities that are behind them,” says Eyquem. By insuring these assets, insurers can prevent erosion, protect their insureds and pay less in claims.  

For example, recent events such as Hurricane Fiona show how extreme weather can impact coastal sediment and the environment. “[It’s] a natural process, but it’s taking away the protection value of those systems,” says Eyquem. 

Lastly, our system currently invests in grey infrastructure (i.e., human-engineered infrastructure such as water treatment plants, pipelines, and reservoirs), but nature-based solutions are equally as important, suggests Eyquem. And the industry can help by insuring the construction of greener infrastructure. 

“Grey infrastructure often starts delivering benefits immediately, [however] it often degrades over time, whereas nature-based solutions get better [with time] generally. They need some time to establish, they’re sometimes vulnerable during that period,” says Eyquem.  

“I know there are some examples where insurance has helped to insure during that construction period, so that if an event or something more dramatic happens during that period, then the reconstruction of the establishment…is provided. 

“There’s a lot of interest from the insurance industry in nature-based solutions and natural capital and how they can play a role.” 

Feature image by iStock.com/DNY59