The World Wildlife Fund (WWF), the international conservation organization dedicated to environmental protection and sustainable development, has released a new white paper titled Addressing the Insurance Protection Gap: Harnessing Climate and Nature to Build Resilience.
The paper warns that ecosystem degradation is increasing climate-related risks and leading to an increase in uninsured losses in advanced economies, WWF said.
WWF said the analysis examines the relationship between climate change, nature losses and global insurance protection gaps, and is accompanied by a policy brief that translates the findings into recommendations to governments, financial regulators and insurers aimed at building resilience and maintaining insurability.
WWF noted that while many widely cited assessments identify climate change as the main environmental factor behind rising insurance premiums and widening protection gaps, its analysis found that nature loss is an often overlooked driver that significantly exacerbates natural climate risks.
WWF said its research shows protecting and restoring ecosystems is one of the most effective ways to reduce these risks and increase resilience. WWF explains that degraded ecosystems are less able to act as natural buffers against extreme weather, creating a reinforcing cycle in which more frequent and severe events impact communities while their resilience continues to decrease.
The paper highlights that in areas with extensive deforestation, the risk of large-scale flooding may increase by up to 700%. WWF reports that the economic and financial impacts associated with extreme weather events and long-term climate disasters are expanding rapidly, with global disaster-related losses expected to reach US$2.3 trillion in 2023, including indirect costs and ecosystem-related costs.
According to WWF, the white paper considers insurance challenges beyond property insurance, showing how climate and nature-related risks can lead to losses in health, agriculture, liability, business interruption and infrastructure. WWF noted that these impacts are associated with higher health care costs, lower productivity, higher food prices, and uninsured supply chain disruptions.
WWF further reports that as insurance companies respond to rising risks by raising premiums, limiting coverage, or withdrawing from high-risk areas, more and more households and businesses are left without adequate protection. WWF estimates that the insurance protection gap in the United States will average $64 billion per year between 2021 and 2024, while in the European Union, the insurance protection gap will reach €59 billion per year between 2021 and 2023.
WWF’s analysis also found that extreme weather events and widening insurance protection gaps are increasingly affecting incomes, asset values, credit and mortgage markets, and public finances, posing wider risks to economic stability and social cohesion. WWF highlights that public budgets are particularly at risk as governments face higher emergency response and reconstruction costs, increased pressure on public insurance schemes and falling tax revenues, while damage to ecosystems remains underfunded and restoration costs are largely borne by taxpayers.
WWF stressed that the document shows that preventive action has a higher value than post-disaster assistance. The organization points to evidence that in the US, up to $13 can be saved for every dollar invested in climate resilience, while in the UK, £8 of losses can be avoided for every £1 invested in flood risk management.
WWF says protecting and restoring ecosystems is one of the most effective prevention methods, as healthy forests, wetlands and mangroves reduce exposure to floods, storms and heat. WWF cites the example of the Alps, where shelterbelts deliver benefits worth approximately CHF 4 billion per year and are 25 times more cost-effective than engineered forest alternatives.
Building on the white paper’s findings, WWF’s accompanying policy brief calls on governments and financial regulators to change the way they address insurance protection gaps, making climate mitigation, ecosystem restoration and insurance policy equally important.
WWF believes that without addressing underlying risk drivers, measures to improve financial resilience will remain incomplete and put communities at risk. WWF said its recommendations emphasize the need to give appropriate attention to ecosystems and nature-based solutions in risk assessments, integrate ecosystems into adaptation and recovery planning, combine insurance regulations with incentives to reduce risks, and accelerate efforts to reduce emissions and stem the loss of nature.
Kirsten Schuijt, director general of WWF, added: “Insurance markets are being disrupted by the exponential growth in loss and damage caused by extreme weather events, caused by rising temperatures and the destruction of the ecosystems that protect us. Forests, mangroves or wetlands are critical to reducing the devastating impact of these extreme events and therefore need to be at the heart of strategies to build our resilience and ensure areas are insurable.”