New Study Concludes Natural Infrastructure and Community Insurance Product Combined Could Reduce Flood Insurance Premium Costs and Produce Savings

The Nature Conservancy (TNC) and Munich Re US, one of the largest reinsurers in the United States, announced the release of a study today that concludes combining nature-based solutions (e.g., reconnected floodplain restorations, wetlands and levee setbacks) with a community-based insurance product is a viable, sustainable, and cost-saving opportunity that can reduce the severity and impacts of flooding. 

The benefits of ecological restoration on insurance costs had been studied in areas that experience coastal flooding or wildfires, but never for inland river flooding. With its study, TNC and Munich Re US wanted to develop strategies for resilience on multiple fronts—upgrading infrastructure that reduces flood risks and introducing a community resilience flood insurance model.

“In the last half century, flooding across the world has resulted in billions of dollars of economic damage,” said TNC’s Director of Protection and Conservation Strategies, Viv Bennett. “Climate change threatens to exacerbate it further with heavier rains dumping more water into watersheds like the Mississippi River and its tributaries in shorter periods of time, creating more frequent extreme floods.”

Raghuveeer Vinukollu, Senior Vice President and Nat Cat Solutions Lead at Munich Re US, added:  “Without risk mitigation, resilience is incomplete. In a changing climate, property owners and communities should focus on mitigating the impact of natural catastrophes like floods in order to reduce both the economic impact and recovery time after an event. While risk mitigation is often associated with infrastructure projects like seawalls, long-term sustainable solutions for mitigating flood risk can also be achieved through nature-based solutions.”

Munich Re US and TNC set out to quantify how a levee setback project conducted by TNC and partners along the Missouri River—and, by extension, other nature-based solutions—would reduce flood risk, and how flood insurance premiums might be lowered as a result.  This study demonstrates how a portion of the costs of a nature-based mitigation solution could be recovered from the reduction in premium provided by an innovative community based insurance solution.   

Munich Re US utilized flood risk reduction modeling from the U.S. Army Corps of Engineers, data and insights from various stakeholders, and its own proprietary data, technology and analytics to model the reduction in insurance losses and premium costs resulting from the levee setback.  Munich Re US found that, in some instances, the annual flood insurance premiums for structures within the areas benefitting directly from the project could be reduced by up to 55% through the levee setback coupled with a community flood insurance product.

Insurance works best when the risks can be spread across a broad base of individuals. Community flood resilience insurance is an innovative concept that was developed as part of the TNC/Munich Re US study. 

Instead of insuring home by home, an insurance company would sell an insurance product to an entire community or subset of a community, to be managed by a local government entity or homeowners association.

The study compared the current National Flood Insurance Program premiums paid by homeowners to the premium for community flood resilience insurance, taking into account the risk reduction benefit of the levee setback. This modeling showed that, in general, homeowners could save even more on flood insurance by covering themselves as a community with a single policy.

With this type of program, some of the savings could be captured to fund the nature-based flood mitigation. “It means that a project like this is potentially self-funding,” Bennett says. “There can be an economic benefit that everyone can participate in. The good news is that nature wins, too.”