Insurance: Protecting Nature, So Nature Can Protect Us
Insuring California means protecting the natural systems we all rely on.
As California confronts another devastating fire season, our state is beginning to recognize that conservation is about more than protecting nature. It’s about making sure that nature can protect us.
Until recently, the insurance industry treated natural disasters like any other “act of God” or accident outside human control. Government insurance programs can sometimes mask the true costs of living in harm’s way by subsidizing homeowners to rebuild in the same place, such as within a floodplain, instead of more secure areas. In the case of wildfire, the cost of insurance can skyrocket if disaster strikes multiple times, leading some to continue living in high-risk areas without any insurance at all.
But what if we could use nature to help reduce the risks to people and property, and make them more insurable? Together with our partners, The Nature Conservancy is making it possible.
It All Started with a Coral Reef
A healthy coral reef can reduce up to 97% of a wave’s energy before it hits the shore and for these coastal communities, natural systems like coral reefs, beaches and wetlands provide the first line of defense against storms.
In a global first, TNC worked with reinsurer Swiss RE and a host of local and international partners to create the first ever coral reef and beach insurance policy to ensure these vital ecosystems, funding repairs to the reef and beaches after extreme storms hit.
Nature-Based Insurance for California
The SB 30 California Climate and Insurance Working Group is comprised of environmental advocates, researchers, and insurance experts. TNC California Climate Program Director, Michelle Passero, was a contributor to the working group’s first-ever report "Protecting Communities, Preserving Nature, and Building Resiliency; How First-of-Its-Kind Climate Insurance Will Help Combat the Costs of Wildfires, Extreme Heat, and Floods."
The report was released in 2021 and now the California legislature and state agencies, like the Department of Insurance, are working to incorporate its recommendations across our state. Many of these recommendations are aligned with the nature-based strategies The Nature Conservancy is pursuing with partners in the field to demonstrate the critical role nature-can play in reducing climate-enhanced risks.
Wildfire Resilience Insurance
We know that ecological forest restoration, like the removal of small and unhealthy trees and controlled burning, can reduce the risk of severe wildfire. But can insurance losses and pricing be lower where ecological forest practices have taken place?
The answer is yes. Working with global risk advisor Willis Towers Watson, TNC used our French Meadows Restoration Project in the Sierra Nevada as a test case to determine whether the wildfire risk reduction benefits of ecological forestry could be incorporated into insurance modeling, structuring, and pricing. Sarah Heard, Director of MarketLab TNC California's conservation finance arm, is leading this effort with our partners.
Our study found that not only can ecological forestry protect homes and businesses, it can significantly reduce insurance premiums for people located in or near forests. When insurance savings from ecological forestry are captured and used to fund or finance forest restoration, a vicious cycle becomes a virtuous one. The results also encourage investment in restoration practices across the public and private sector, given the widespread insurance benefits.
With our partners at Willis Towers Watson, we have developed the first wildfire resilience insurance product on the market. It's designed to protect property while dedicating premium savings to forest restoration.
In California, everything is connected and by insuring nature, we are insuring our future.