Biodiversity and insurance

Biodiversity loss involves social, economic and environmental risks. The question is: how can insurance help? It is often insurers who foot the bill for economic losses – but they do much more than that. Insurers play a crucial role in providing risk coverage, which involves the pricing of risk, advising and protecting customers, and helping to minimize impact from adverse events that might notably include biodiversity loss.

Some insurance products such as risk pools and parametric insurance cover environmental risk and there is a growing market for environmental liability insurance. However, extending insurance to natural ecosystems such as wetlands and tropical forests is only just emerging. The challenge is to scale up insurance products, build more risk awareness, reach more people and communities, and provide effective long-term protection for natural resources. Adias Gerbaud, Aurélie Fallon Saint Lo and Chip Cunliffe from AXA XL as well as Mark Way from The Nature Conservancy, share their view on the role insurance can play in protecting nature.

$15 billion

Over the past five years, the US government has paid $15.2 billion in flood claims under the country’s National Flood Insurance Program.

Source: FEMA (US Federal Emergency Management Agency) (2019)


Aurélie Fallon Saint-Lo,

Underwriting manager, Environmental risks – France & Benelux, AXA XL

“Companies’ attitudes and standards have evolved – twenty years ago, some of the conversations were quite difficult to have. They are now more open to discussing their environmental impact. On one hand, there is a genuine desire to be more responsible; on the other, they no longer have a choice. The rise of social media means that you just cannot hide anything anymore. To support our customers, we not only offer traditional risk transfer, but also prevention, risk mitigation and crisis management services.
“Sixty percent of significant pollution incidents are caused by a failure of existing systems, or by human failure. The work has started, but governments need to do more to enforce legislation.”

Adias Gerbaud,

Head of Environmental Insurance International at AXA XL

Environmental liability insurance In 2007, the EU Environmental Liability Directive (ELD)35 established the ‘polluter pays’ principle, acknowledging that those who cause pollution are liable for it and must take the necessary preventive or remedial action and bear all the costs, notably related to damage in the areas of human health and the environment. This helped raise awareness of environmental risks for private companies. Companies are now investing in sustainability and new regulations have been introduced in Europe. In France, for example, some cities now include a requirement for environmental insurance in large-scale building projects.

The ELD also broadened liabilities. While the focus had previously been on pollution and industrial accidents that would damage the local environment, companies can now be held liable for indirect damage as well – if a factory fire destroys nearby protected woodland, for example, or a business obstructs local access to water.

Take-up rates for environmental insurance, however, are patchy. Some countries, such as Spain, have made financial provisioning compulsory. In the United Kingdom, the National Farmers’ Union included coverage in their insurance package for farmers. Elsewhere, many smaller businesses choose to forego coverage, in part because they lack clear data on potential clean-up and restoration costs. The result is that smaller businesses, often less ‘regulated’, may, paradoxically, be at greater risk.

Insurers cover risk, and they also help with prevention. AXA XL works with risk engineers in this area and with CEDRE – consultants specializing in water pollution. Regulators have an important role too: enforcing standards, tracking data on clean-up costs, allowing businesses to assess risk more accurately, and ensuring not only that fines are paid, but that companies also clean up damage and restore environments to their original condition.

$82 billion

Without today’s mangroves, flood damage would rise by more than $80 billion a year – and another 18 million people would be affected by flooding, two-thirds of them in just three countries: Vietnam, China and India.

Source: TNC, World Bank (2018)

Insurance for natural ecosystems

Different products are emerging based on the principle that, by protecting natural ecosystems, we can also protect people, property and livelihoods. Most of these work by putting an economic value on our natural resources.

Dept-for-nature-swaps: were created in the late 1980s. Some debt swaps cover tropical forests in Latin America and the Caribbean, while the Seychelles, for example, banned commercial fishing, oil exploration and economic development for around a third of its coastline in exchange for selling part of its national debt. These swaps protect natural ecosystems; they also provide a clear financial benefit, though they require effective enforcement. Governments may also use these alternatives to reschedule external debt

Blue carbon credits: work by combining traditional carbon credits with building resilience to natural disasters through investment in natural ‘green’ infrastructure (see above).

Insurance products: for their part have developed more recently: Swiss Re has launched a product to protect coral reefs in Mexico, along with TNC and the Mexican government. TNC was also behind the Seychelles debt-for-nature swap. The new TNC /Swiss Re product uses the concept of parametric insurance where pay-outs are triggered automatically by a given ‘event’ – in the case of coral reefs, when windspeeds reach a minimum of 100 knots. Importantly, the product has the backing of local hotel groups – premiums will be financed through an existing tax paid by owners of beachfront properties.

TNC wants to apply the same principle to other natural ecosystems and is working with AXA on possible insurance for mangroves, which help defend coastal communities from storm surges and flooding, for example in south-east Asia. In recent years, governments in this region have spent millions of dollars on restoring mangroves, and a new insurance product would help protect their investment. To local communities, these new products bring definite benefits such as a reduced reliance on man-made, ‘grey’ infrastructure, for example. They should also help close the ‘protection gap’ in countries where much of the population is still uninsured, as well as safeguard local jobs and livelihoods. The challenge now is to scale up these products and to do so quickly to attract more private sector investment in building resilience. Beyond current products, other opportunities are emerging such as providing credit insurance to fishermen in return for adopting more sustainable fishing practices.


Chip Cunliffe,

Director of Sustainable Development, AXA XL

“The insurance industry has a key role to play to increase resilience in the communities likely to be most impacted by ocean risk. Reefs, mangroves and other coastal ecosystems are of critical importance for coastal protection and disaster risk management. Through the development of financial and insurance products, we can redirect financial flows to ecosystem conservation and restoration and help close the protection gap.

Mark Way,

Global Coastal Risk and Resilience Director, The Nature Conservancy

“Awareness levels have gone up significantly. Hurricane Katrina was a shock – hurricane Sandy was another shock. Since then, there has been huge interest in what we can do to reduce vulnerability. Nature is definitely part of that question – and it will have to be a bigger part of the answer. The insurance industry can help by recognizing how nature reduces risk, design products to protect it and encourage investment in its restoration.”

Ocean Risk

It is clear that our oceans are changing, and changing fast. That has implications for coastal regions, for biodiversity, and for the lives and livelihoods of billions of people. An estimated 800 million are currently at risk from flooding because of storm surges and the rise in sea levels36. AXA has made oceans a key part of its biodiversity strategy with AXA XL leading the Group’s work on ocean risk. It helped set up the Ocean Risk and Resilience Action Alliance (ORRAA), along with Ocean Unite, the Global Resilience Partnership and the Canadian government.

The aim is to better understand ocean risk and develop new financial products to drive investment in natural capital and build resilience in coastal communities. Key to this is ORRAA’s public-private approach: there are now eleven governments involved – the G7 countries, Mexico, Norway, Fiji and India37. Work has already begun on an Ocean Risk Index which will provide a framework for assessing ocean risk and should, ultimately, make for better policy response

36 C40 Cities – Staying afloat, the urban response to sea level rise. 37 Current full members of ORRAA are: AXA, Ocean Unite, Global Resilience Partnership, the government of Canada, Stockholm Resilience Centre, The Nature Conservancy, Willis Towers Watson and Rare.


Research Fund

Share this page