Embedding equity and nature into insurance schemes that tackle climate risk reduction

Climate change and biodiversity loss are no longer parallel issues but deeply interlinked crises. Together they heighten disaster risks, undermine ecosystem resilience and increase vulnerabilities for communities. Innovative insurance schemes, designed with equity, nature and climate risk reduction in mind, can play a key role in contributing to addressing the joint crises.

Climbing atmospheric and ocean temperatures have led to an increased frequency of extreme temperatures, volatility in precipitation and natural catastrophes such as wildfires, floods, landslides and storms. This is causing widespread ecosystem degradation, infrastructure breakdown, financial losses and human mortality. In 2024, climate-driven natural catastrophes directly led to estimated losses of US$402 billion globally, of which only around US$151 billion had been covered by the insurance industry.

The world also faces a nature crisis – connected to climate change – with 75% of the land surface now significantly altered and 25% of plants and animals threatened with extinction. Future cashflows depend on the resilience of ecosystems; an estimated US$10 trillion of GDP could be lost by 2050 due to the decline in ecosystem services if nature is not protected.

Nature-based solutions (NbS), including wetlands, urban tree cover and coral reefs, are powerful tools that can address multiple challenges at once, including the need to restore ecosystems and mitigate and adapt to climate change. NbS are increasingly being discussed as a solution that, in combination with engineered assets or ‘grey’ infrastructure, provide resilience against climate change while also benefitting nature. There is a rising trend in NbS being embedded into the design of innovative insurance schemes, building long-term resilience in addition to providing a traditional risk-transfer mechanism.

Insurance as a growing solution

Potential is growing for innovative insurance schemes to play a role in addressing the joint climate and nature crises. Insurance schemes have traditionally held a risk-transfer function, but over the last two decades there has been a growing focus on insurance addressing key drivers of risk, including nature-related aspects. Insurance is no longer being assessed solely on its ability to compensate after disasters but also on its contribution to building resilience before disasters occur.

Our new report developed with partners from across the EU’s Naturance project highlights that insurance, when carefully designed, has the potential to support climate adaptation while also delivering co-benefits for people and nature. However, to succeed, schemes must be context-specific, financially viable and socially just. A key question remains regarding how these schemes should be designed to ensure they achieve their goals and avoid unintended consequences.

Designing insurance to address climate, nature and equity goals

Our assessment of case studies shows that innovative insurance schemes that address nature and equity as well as climate adaptation are not only possible to design but are already being implemented by forward-thinking insurers and their partners, creating clear benefits for society. Many of these schemes are in the early stages and there is a need for further evidence of long-term success to inform further schemes.

The opportunities and challenges for policymakers, insurers and communities our study highlights include:

• Multiple design configurations are possible. Insurance design can be structured across private, public and third sector actors in different ways. The challenge is identifying which configuration best fits local context and needs.
• Stakeholder engagement is currently variable across schemes. The extent and quality of engagement influence how schemes evolve and who ultimately benefits.
• Embedding nature is an emerging area. While climate risks are widely acknowledged and addressed, the consideration of nature risks is still nascent. There is a need to consistently embed nature into scheme design from the outset, including careful assessment of co-benefits and trade-offs.
• Risk reduction is incorporated to different extents. While risk reduction is gaining prominence as a priority in insurance design, there remain multiple options for embedding it and to different extents. With levels of risk expected to rise, the need to integrate risk reduction within insurance schemes is expected to become even more important.
• Balancing the different principles of equity is complex. Addressing multiple dimensions of equity requires careful reflection on a scheme’s objectives and scope. Further complications arise from stakeholders often having differing views on what equity consists of.

No universal blueprint – but clear principles

The evidence shows that innovative insurance schemes have the potential to address multiple societal challenges at once. However, their effectiveness depends on their design and implementation. There is no one-size-fits-all solution: success requires revisiting foundational assumptions, fostering collaboration across sectors and developing approaches that are both principled and pragmatic.

As climate and ecological risks escalate, the urgency to build robust, inclusive and sustainable insurance models grows. Insurance can and should be part of the solution but there is a need for scheme design to consistently embed equity, resilience and nature.

Read the authors’ report, ‘Equitable and sustainable business models’.

The NATURANCE project is funded under the EU Horizon Europe Research and Innovation Framework (Grant Agreement No. 101060464), to examine the technical, financial and operational feasibility and performance of solutions built on a combination of disaster risk financing and nature-based solution investments.