Saving Nature Saves Money

It’s no secret that coral reefs, mangroves, salt marshes, and other natural habitats can protect coastal regions against damage from storms and flooding. Similarly, proper forest management reduces blaze severity and helps firefighters protect nearby property.

But quantifying the insurance savings derived from these natural barriers and proactive steps has enabled insurers and brokers, working with partners including environmental organizations, local governments, and homeowners associations, to put forth policies that help restore damaged natural habitats and reward insureds for taking their own steps to reduce the risk of devastating wildfires.

Nature’s value has been quantified at the international level—roughly $44 trillion of economic value generation, representing more than half of global GDP, depends to some degree on nature, the World Economic Forum says. For example, the construction, agriculture, and food and beverage industries extract material from oceans and forests and/or need healthy soils, clean water, pollination, and climate stability to remain economically viable, the organization determined in a 2020 report. Those three sectors alone represented $7.9 trillion of economic value generation.

Meanwhile, “Nature is deteriorating globally and biodiversity is declining faster than at any time in human history,” according to the Taskforce on Nature-related Financial Disclosures.

Nature can be considered an “exposed asset” in much the same way that one might think of a house or a person’s health—i.e., it’s worth protecting, says Swiss Re. Once that idea is accepted, a four-step process can follow to protect that asset, the reinsurer affirms: identify the resource and any associated expenses (restoration) or benefits (tourism dollars); figure out who pays the premium; analyze the risks to that asset; and identify potential payouts for early intervention, repairs, and/or compensation.

“Collaborations with clients can take various forms, for example joint pilots or development of innovative risk transfer products that support the preservation and upkeep of natural coastal barriers and beyond,” says Doris Pöpplein, sustainability markets lead at Swiss Re. “We are raising awareness with our clients about the importance of disaster risk resilience and are working towards cultivating business practices taking into account prevention, mitigation, and adaptation to address insurability beyond our role as shock absorber.”

The Nature Conservancy has worked with insurance brokers and carriers on a number of projects with that specific goal, in the United States and beyond.

Insurance companies make sense as partners in these endeavors, says Eric Roberts, the environmental organization’s senior manager for global climate risk and resilience. He says that by integrating nature into insurance risk models, “we can help increase people’s understanding about risk, not only to themselves, but of the resources that they value. Insurance can put a price tag on risk that helps to facilitate behavior change. It can provide incentive to actually do proactive risk reduction, which might look like a proactive risk reduction of a wetland or…proactive forestry management that reduces risk over time. Insurance can also help enforce standards.”

Roberts breaks this work down into two approaches: natural asset insurance—coverage to pay for the repair and restoration of ecosystems damaged in a qualifying event; and resilience insurance—policies that account for the risk reduction qualities of nature, or of human management of those ecosystems, in setting pricing.

Florida as Laboratory

In a February 2025 analysis, Swiss Re Institute researchers determined that coral reefs, mangrove swamps, salt marshes, and other coastal habitats can cut insurance loss frequency by roughly 50% from flooding due to what they called “higher frequency-lower severity storms.” These habitats absorb floodwater and storm energy that could otherwise slam into densely populated coastal areas, along with stabilizing shore areas and preventing erosion.

The Swiss Re team focused its analysis on Florida, the hurricane-prone state with the greatest extent of coastal property exposure to storm surges in the United States.

Specifically, the researchers analyzed flood insurance losses in Florida from 2009 to 2022 using data from the National Flood Insurance Program. Roughly 40% of claims filed through the federal program for coastal regions during that period involved storms no more powerful than a Category 3 hurricane (meaning wind speeds up to 129 mph), for a total of $1.15 billion in paid losses. The Institute then cross-referenced that information with data from its Biodiversity and Ecosystem Services (BES) Index that models where coral reefs, mangroves, salt marshes, and seagrass would provide high levels of protection to coastal zones.

“Our results were striking. Areas with high BES coastal protection saw on average 1% of insurance policies report a claim in a month with a flood event, compared to 2.8% in areas with less coastal protection,” according to the analysis. “Even when accounting for other flood risk factors, the mitigating effect of coastal habitats remained significant. We consistently observed a reduction in loss frequency of between 42% and 65% in areas with high BES coastal protection. We conclude that for the data analyzed, the presence of coastal habitats reduces the frequency of insured flood losses from lower severity storms in Florida by around a half.”

Previous research has demonstrated the benefits those habitats provide against extreme weather conditions, Pöpplein says. She cites research published in 2019 that determined that mangrove forests in Florida cut storm-damage loss from Hurricane Irma two years earlier by $1.5 billion and provided natural defenses for over 626,000 people around the state. Meanwhile, a U.S. Geological Survey research report in 2021 warned that coral reef degradation in Florida could mean an additional $385.4 million in annual direct damages to over 1,400 buildings.

“What sets our analysis apart from these studies is the use of insurance claims data instead of modeled estimates to quantify the protective benefits of coastal habitats, thus directly highlighting their relevance to and impact on re/insurance,” Pöpplein told Leader’s Edge.

The threat to Florida’s coastal habitats is well recognized.

The 350-linear-mile coral reef off the state’s western coast is the sole living coral reef system along the continental United States, the U.S. National Oceanic and Atmospheric Administration (NOAA) notes. However, as of December 2022, 506 of the Florida reefs’ 723 locations were experiencing yearly habitat loss, totaling 70%, NOAA said at the time. The culprits were disease, coral bleaching, and groundings by ships.

Similar scenarios are playing out for other coastal habitats in Florida. The state has roughly 600,000 acres of mangrove trees, which grow in salty and brackish coastal waters. Dating to the 20th century, development in coastal and urban areas has eliminated 50% to 60% of the mangrove forests in estuary habits including Tampa Bay and Charlotte Harbor, the University of Florida’s Thompson Earth Systems Institute reported in 2022. Other threats include water pollution and storms and sea-level rise associated with climate change. The news is not all bad, though—while mangrove forests in southern Florida are pressured, they gained 3,000 acres along the state’s northern Atlantic coast from 1984 to 2011 as winter cold snaps became less common, according to the Florida Department of Environmental Protection. However, “much of these gains come at the expense of salt marsh communities,” the agency says.

Parametric Policies Help Restore Reefs

Changes to Florida’s natural habitats reflect changes at the global level, according to AXA XL. Half of the world’s mangroves have disappeared since 1940, along with corresponding figures for seagrass and salt marshes, the insurer says.

“Degradation of coastal habitats reduces the protection they afford,” the Swiss Re Institute analysis affirms. “This is a matter of relevance for the insurance industry given their protective benefits.”

Insurers have a role in protecting these natural habitats, the Institute believes.

“The insurance industry can raise awareness on the benefits coastal habitats provide and help support their preservation by working closely with regional governments, environmental agencies, [and] community organizations,” Pöpplein says.

A handful of parametric insurance policies are already in place to repair and restore coral reefs following storm damage, notably along Mexico and several Central American nations. One example is a parametric policy for the Mesoamerican coral reef along the Yucatán Peninsula, which was put in place by Swiss Re in partnership with The Nature Conservancy and regional governments in Mexico. The policy is triggered by storm damage and would provide funding for repairs to the reef.

Tropical cyclones can inflict significant damage on a reef, such as breaking off segments, covering them with sediment, and causing tissue loss and abrasion that can increase their vulnerability to bleaching. Parametric coverage pays for work including relocating reef colonies that have been covered by sand and reattaching segments of coral to the main body to stabilize the habitat after an event. The benefits have already been demonstrated: a policy held by the state of Quintana Roo in Mexico paid out close to $850,000 following Hurricane Delta in 2020, enabling a team of reef first responders to gather and plant about 8,000 pieces of detached reef.

The Nature Conservancy conducted feasibility studies on coral reef policies for Hawaii and Florida and moved forward with hurricane and tropical storm coverage for Hawaii in 2022 with broker WTW and insurer Munich Re—the first policy of its kind in the United States.

Coverage was augmented in 2024 with a new policy—again through WTW and Munich Re—encompassing all the primary Hawaiian Islands and with the coverage area expanded by 314,976 square kilometers (121,613 miles). Wind speeds of 50 knots (57 mph) near the reefs are required to trigger the parametric policy, which carries a $200,000 minimum and tops out at a $2 million payout. That policy was renewed this year.

There are no current plans for establishing a corresponding policy in Florida, Roberts says. The 2020 feasibility study identified particular challenges in trying to move ahead with such a project in the state: “Due to the high risk of hurricanes in Florida, insurance to cover this risk is understandably more expensive than in areas with lower frequency of hurricanes. Therefore, obtaining coverage to fully repair reefs may be cost prohibitive, highlighting the need for multiple and diverse funding sources and mechanisms.”

Forest Management Improves Policy Terms

California’s battles with massively destructive wildfires have become regular events, and the property and casualty (P&C) industry’s efforts to stay afloat in the state have been extensively reported. Insurance losses are estimated at upward of $40 billion for multiple fires that in January destroyed thousands of homes and other buildings in the Los Angeles area.

In response to this threat, P&C insurers in California have sought rate increases and have limited their exposure to the market by pausing new policies at times, among other steps. The state government, meanwhile, has worked to keep both its residents and its insurance companies from further financial whiplash as these events multiply.

In April, WTW announced that its Willis division had joined with The Nature Conservancy and the University of California, Berkeley’s Center for Law, Energy and the Environment to develop a novel policy that encourages wildfire mitigation by the client.

The $2.5 million parametric wildfire resilience policy underwritten by Globe Underwriting covers 1,345 acres of forest and recreation land in Truckee, California, operated by the Tahoe Donner Association. The policy carries a 39% lower premium and 89% lower deductible than would be available had the homeowners association not conducted a decade’s worth of tree thinning, planned fires, and other forest management projects covering 1,520 acres aimed at reducing wildfire severity in the event of ignition, according to WTW. If triggered, it would pay for rehabilitation of areas burned by wildfire, including safely removing damaged trees and managing soil erosion. Payouts would begin after damage to an area is estimated to exceed $10,000—effectively making that the deductible.

“It’s a proven, scientific way to reduce wildfire risk. And I think the work done by the Tahoe Donner Association is replicable by others,” says David Williams, associate director, alternative risk transfer solutions, at Willis. “And I think it’s a case of different players in the insurance world. So for broker to…put forward client cases when they’ve done good fuel reduction. It’s a question of understanding that it can be accounted for and how to account for it. We hope this is a potential framework that people will consider to account for forest management.”

Historical wildfires and modeling have shown that reducing vegetation and other fuel beforehand curbs the severity of blazes in those areas and makes it easier for firefighters to prevent destruction of nearby property, adds Williams, who headed Willis’s work on the Tahoe Donner project. While Willis has wildfire policies outside of the United States, including in South America and southern Africa, this is the first to explicitly account for risk reduction in pricing the policy and to pay for post-fire rehabilitation.

The project began early this decade with WTW and The Nature Conservancy wanting to know whether the risk reduction values from ecological forestry could be applied to insurance industry rate models, says The Nature Conservancy’s Roberts. The two organizations published a paper in 2021 showing it was possible.

Moody’s and other industry observers were able to replicate the results, further strengthening the case made by the broker and its nongovernmental partner, Roberts says.

The team of specialists in broking, forest science, and California’s insurance market, including the homeowners association’s risk manager, compared the damage left by the 1960 Donner Ridge Fire, which burned nearly 45,000 acres in the region, with local fires from 2003 and 2007—after Tahoe Donner had begun forest management. Historical weather data showed the blazes occurred in similar conditions for heat, wind speed, and other variables, but firefighters reported that the flame lengths in the later events reduced upon hitting managed zones, enabling them to be more easily extinguished.

That demonstrated the direct connection between forest management and risk reduction, Williams says. Modelers, with a few simple assumptions of the effect of fuel reduction on fire behavior, then redrew the boundaries of the Donner Ridge Fire based on it hitting zones of fire fuel reduction today.

“We recalculated the loss for that big fire now that it was given fuel reduction work and we argued that it would now be lower. And then we recalculated the annual average loss, and it was around 40% lower,” Williams says. “There’s an argument to be made here that the annual average losses would be 40% smaller with fuel reduction work rather than without.”

Willis and The Nature Conservancy approached several insurance companies with a technical report detailing their findings. They ultimately placed the contract with Globe Underwriting, which conducted its own research that resulted in similar findings regarding the impacts of fire fuel reduction. Based on all that data, Globe recommended the reductions in premium and deductible for the Tahoe Donner Association policy.

WTW would be interested in placing similar policies, but it is too early to say when or where that might happen, Williams says.

“We certainly have done a lot of internal talking about this. We are interested in replicating the kind of reductions that we see here where there’s good forest management and encouraging forest management as a way to reduce risk,” he adds.

It’s likely to take a couple years to develop another policy of this type, Roberts cautions. But the pace should quicken as more are completed and insurance brokers and firms can learn from past practices, he says.

Parametrics Provide Cover, Complexities Remain

There are reasons why insurance research and policies have to date emphasized coastal regions and parametric solutions, often in combination, industry experts say.

Parametric coverage can be developed to pay claims based on agreed-upon parameters such as specific wind speeds or daily rainfall amounts, eliminating the need to conduct detailed, potentially expensive asset evaluations before or following an event, says Jamie Pollard, disaster risk finance lead at London-based Global Parametrics.

A parametric policy also pays out quickly once triggered. And it only requires that the policyholder have a financial interest in the asset, rather than owning it outright such as with property coverage, says Maria Arana, Marsh’s climate and sustainability leader for Europe.

“Parametric solutions are ideal for this kind of nature-based solution,” she says. “Just because parametric solutions are based on an index, which has to be an independent physical index like temperature, water, and that triggers very appropriately for nature-based solutions.”

Pollard notes that, in this situation, parametric insurance often covers the expense to restore the ecosystem or offset income lost due to damage, rather than paying for the physical damage to the covered ecosystem.

Thinking in this realm, though, is not limited to coasts.

Swiss Re, for instance, collaborated with China Pacific Insurance and other stakeholders to establish parametric coverage for typhoon and drought damage to the “gross ecosystem product” of Hangzhou Bay Wetland Park in China’s Zhejiang Province. Gross ecosystem product is a tool for measuring nature’s contributions to economic activity that originated in China but has expanded beyond its borders, including adoption by the United Nations Statistical Commission for ecosystem accounting.

“It is important to be aware that different financial tools are required to facilitate different types of nature-based solutions,” says Pollard, who has helped develop projects including a multicountry insurance program for the Mesoamerican Reef. “Parametric insurance is appropriate to support immediate ecosystem restoration activities following extreme events (e.g., reef insurance for hurricane impacts), while direct investment may be required to support other nature-based solutions (e.g., ecosystem conservation). Approaches may also work together, for instance, insurance could help to protect an ecosystem conservation scheme from extreme event impacts, while it gets established.”

While some projects are well established, others remain in various stages of development. The Nature Conservancy is developing a reef insurance program in the Bahamas and supported exploration of the approach in Indonesia, Fiji, the Philippines, and the Solomon Islands, Roberts says. (WTW worked on a separate parametric coral-reef policy for Fiji placed with Pacific Catastrophe Risk Insurance.) The environmental group has also studied natural asset insurance for salt marshes in Georgia with Swiss Re and Guy Carpenter, as well as applying resilience insurance to that same ecosystem generally. The organization teamed with Munich Re to explore the potential for covering riverine ecosystems via resilience insurance. Additional funding would be necessary for any of these projects to advance, according to Roberts.

“There are things that hold these projects back and there’s a range of different reasons. I think in some ways it’s very much context dependent,” he says. “I would say maybe a few kind of across the board issues that maybe don’t prevent this work from going forward, but certainly draw out the process of developing these projects, is, one, we don’t have a really solid understanding for each ecosystem the amount of risk reduction value that it can provide and under what conditions.”

Studies have been conducted on the risk-reduction benefits of coral reefs, mangroves, and marshes, he says, but questions persist about how often they provide that value.

“If we lost all the mangroves in the world, some estimates have said insurance losses could be around $65 billion a year without that ecosystem or those ecosystems broadly,” says Monika Henn, senior sustainability manager with AXA XL. “But what’s the value of an individual mangrove forest to one site that we might be insuring? Thinking about the site-specific value of nature is something that people are still trying to figure out. And so we need more research, more data on that to really get down into the details.”

Salt marshes appear particularly complex, Roberts adds. Research by The Nature Conservancy and other organizations has demonstrated risk reduction benefits during storms. However, the benefits can vary by storm or even by property.

The amount of fragility curve data also remains spotty across all habitats, but it’s necessary to setting insurance levels, Roberts believes. A fragility curve is basically the relationship between two variables—in this context, damage to an ecosystem and another variable. For example, the relationship between wind speed and loss of coral cover.

“And so that fragility curve tells you essentially how much damage you could expect to the coral reef based on various intensities of storms,” he says. “And that’s helpful to actually build the insurance policy itself. It also helps the policyholder, or would-be policyholder, understand how much damage we could expect and how much money I might have to pay to actually repair it. So how much insurance do I need?”

Arana thinks that type of awareness-raising is important for clients. “I think the insurers will be looking at and favoring those kind of nature-based solutions with some of our clients,” according to Arana. “I think the clients will tend to just look to the conventional prevention measurements rather than the nature-based. But I think that’s part of the dialogue and that depends a little bit in which stage of the project development process we get involved.”

Clients need to be aware that natural hazards represent a long-term and growing risk, rather than siloing nature away as a sustainability issue, Henn says. Local communities must also be brought on board, which requires demonstrating the business case and other benefits to stakeholders.

Uptake of these projects will ultimately depend on client interest and how much they are willing to invest, Arana says.

Scale is another challenge, Henn and Pollard say. Most policies in place today involve small geographic areas and tight limits. While increasing the reach of these projects would come with significant benefits—potentially making them more cost-effective and attractive to reinsurers while covering additional ecosystems—new programs must also be designed to appropriately address each new geography, risk, and ecosystem, Pollard says.

“What we need to figure out is maybe just how to scale these type of engagements and opportunities,” Henn says. “How do we really get nature from being something that’s quite niche into being something that could be better integrated into a traditional policy? I don’t necessarily have an answer for what that looks like at this point.”