Nature loss risk calls for innovative transfer solutions: Marsh

Nature loss is significantly affecting businesses by disrupting supply chains, decreasing available natural resources and ecosystem services, and threatening corporate climate risk management strategies, according to a new report from Marsh McLennan.

As nature loss moves up the corporate agenda, risk transfer can play an important role in reducing businesses’ impact on nature and building corporate resilience, says a report from the broker, Rooted in Resilience: Innovations in Nature Insurance for Business. But it says new models of collaboration and investments in analytics and risk managements systems are needed to foster more innovation and bring new insurance solutions to scale.

To deal with nature loss risk, businesses need robust enterprise risk management strategies, including pollution prevention and avoidance, says Marsh, adding that risk transfer solutions, such as environmental liability and business interruption cover solutions are emerging as vital components in this process.

The report explores the role of insurance solutions in supporting corporate environmental risk management in the face of nature loss. It notes that for many businesses, nature loss is already having financial, operational, strategic, and compliance impacts.

For example, the average settlement cost for environmental cases in the US has increased eightfold between 2002 and 2022, to $3.7m in the last 20 years. Negative impacts of air pollution on agriculture yields have resulted in an economic loss of $7bn a year in Europe, an estimated loss of $28bn worldwide, while the report adds that by 2050, 61% of current and planned hydropower dams will be in river basins at high risk for water scarcity, flooding, or both.

The report provides several examples of risk transfer solutions that help corporates build resilience against nature loss, restore nature to build resilience against physical climate risks and protect nature to de-risk decarbonisation efforts. “The importance of these nature insurance solutions for corporates is expected to grow, as businesses face greater regulatory pressures, tightened disclosure policies, and growing financial risk exposure,” says Marsh in the report.

It also explores the challenges in bringing nature insurance solutions to scale: “Advances are needed across data, technology, corporate practices and governance to overcome existing barriers. Businesses and insurers alike will need to rethink their approach to risk management and integrate nature-related risk into their strategies. Additionally, strong cooperation between the public and private sector – such as government incentives for the private sector and cross-industry partnership – will be critical to increase awareness and action around nature-related risk,” the report states.