Lloyd’s Urges Insurer Investment in Natural Habitats for Flood Protection

June 13, 2017

Natural coastal habitats such as mangroves, coral reefs and salt marshes protect communities more effectively against coastal storms than seawalls, and insurers should consider this when pricing flood risk, Lloyd’s of London said.

Investment to conserve natural habitats also makes sense for insurers, a report written for Lloyd’s said on Tuesday, as it is around 30 times cheaper than building seawalls.

Insurers have paid out more than $200 billion in claims for damages due to coastal floods in the past 10 years.

But they could reduce the amount they pay in claims and offer lower premiums if they considered the impact of natural infrastructure.

“If you are in a more resilient city, compared to a less resilient one, then those risk levels should be taken into account in pricing,” said Trevor Maynard, head of innovation at Lloyd’s.

Insurers should invest more in habitat conservation to reduce the risks from coastal floods, the report, by the Center for the Blue Economy, the University of California, Santa Cruz and The Nature Conservancy, said.

“Flood risk reduction should be undertaken before the flood occurs, but we currently spend much more on recovery efforts than on risk reduction.”

Coastal wetlands remaining in the northeast of the United States saved more than $625 million in flood damages from Hurricane Sandy, around 1 percent of the total flood damages from the 2012 hurricane, previous research for Lloyd’s has shown.

Public and private sector financing to support natural infrastructure is increasing, but “the availability is geographically uneven,” the report said.

(Reporting by Carolyn Cohn, editing by Louise Heavens)

Editor’s Note:

The Lloyd’s Tercentenary Research Foundation and its board are holding a special event today at Lloyd’s on the risk reduction benefits of coastal habitats and opportunities to finance natural infrastructure solutions. At this special event, Lloyd’s will host experts in coastal ecology, coastal engineering, risk modelling and economics who will present new work on the modeling and financing of natural infrastructure to support risk reduction and climate adaptation. The speakers will address the risk reduction role of natural infrastructure, how this role may be accounted for in industry risk models, and how investments in natural infrastructure can enhance natural wealth and social resilience.

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