A paradigm shift in nature-related risks—and what it means for insurers

Insurers and brokers will play a crucial role in helping analyse, understand, and more importantly, mitigate rising nature-related risks, which businesses have just started exploring. It will require a sustained barrage of change and innovation but also actions to protect against possible liabilities, reputational consequences and the “danger of greenwashing”, a climate resilience and adaptation expert at Marsh has said.

Businesses are grappling with the implications of “unprecedented” nature loss and its irreversible catastrophic ramifications. Despite that, nature-related risks are rarely accounted for by businesses. However, Swenja Surminski (pictured), managing director of climate and sustainability at Marsh McLennan Advantage, believes that is about to “change significantly” in the next few years.

Speaking to Intelligent Insurer following the release of Marsh’s report “ Embracing nature” in September, Surminski explained that although companies are still at an early stage, they are starting to recognise their dependency and impact on nature, and how that can affect their assets and operations in the near future.

“We can’t win the climate change fight without a functioning natural environment, and more companies are now starting to recognise this,” she said. “Suddenly we see the connection between the environment and business activity, and this is the starting point for a lot of very innovative solutions.”

Marsh’s report signals a “paradigm shift in risk management and reporting” through the inclusion of nature risks in environmental, social and corporate governance disclosures as businesses start to consider environmental degradation as a potential source of systemic risk.

Surminski said: “There are regulatory changes underway, new policies, new legislations emerging and demand from customers and investors are shifting. There is a big focus now on risk disclosure.

“More and more corporates will start disclosing their exposure to nature risks—similar to what we have seen with climate change, where initially it was voluntary.

“We will see more tools, better data, and more analytics coming to the fore, helping corporates to understand these risks and become more resilient.”

The report highlighted that nature loss can translate into direct but also indirect risks that can affect business models, value chains, investment portfolios, market strategies, and stakeholder relations, such as “issues around liability, business interruption loss and risk to assets”.

“We can’t win the climate change fight without a functioning natural environment.” Swenja Surminski, Marsh McLennan Advantage

First-mover advantage

Surminski believes that insurance can play a “significant role in understanding and navigating these risks to be ahead of the curve, but also in changing regulatory requirements. And, in that process, there are opportunities they can capitalise on”.

Part of this, she suggests, includes helping channel more investment into nature and nature-based mitigation solutions, such as parametric wildfire catastrophe bonds, venture funds focused on biodiversity, flood risk solutions, and policies to protect coral reefs and mangroves.

Surminski alluded to European Commission-funded projects such as the  Naturance proposal, which sets out to foster collaboration between insurers, government and investors to develop innovative risk transfer solutions for nature-related risks.

“It is such a complex area that corporates, brokers, risk advisors and insurers will need to work together to better understand and avoid it while becoming more transparent in terms of their activities,” she stated.

“Private finance will have a critical role to play in the scaling up of nature-positive financial flows,” she added.

According to Surminski, first-movers will have a “competitive advantage” over their peers, but companies will need to “reorient their strategy” to navigate the changing risk and regulatory landscape.

Surminski reiterates that nature loss is a complex area that will require due diligence and monitoring processes.

“Well-meaning policies and corporate initiatives can have unintended reputational consequences by being perceived as ‘greenwashing’,” she said in the report. “Organisations will need to be aware of possible liabilities arising from environmental degradation.”

As investors and regulators push for more transparency, companies will need to engage with other industry participants, build in-house expertise to brush up and boost their enterprise risk management strategies, and there will be new laws coming into effect to help firms better prepare for the future, she concluded.