This piece is by Will Butler, CEO and Founder of GaiaSicura
The condition of land, water and nature is now a burning issue for the insurance industry globally – whether they are aware of it or not. The so-called ‘weather extremes’ of recent years will be the norms of future decades. When natural infrastructure such as wetland and woodland is lost, and farm soils are in increasingly poor condition, the effects of climate change cause even greater damage to homes, businesses, and the systems that sustain them.
The Climate Change Committee, the official advisor to the Government, has estimated that the cost of annual flood damage in the UK can be expected to rise from £3.3 billion today to £4.5 billion by 2050. The tally of the cost of wildfire damage this summer is expected to far exceed the £460 million bill faced in 2025.
If the cost of the damage is not adequately reflected in insurance premiums, everyone is in peril. If losses continue to exceed expectations, insurers may increase premiums, restrict cover, or withdraw from particularly exposed areas. That could leave more households and businesses unable to obtain affordable insurance. The consequences for those who lend to property owners are severe.
Government pledges to build hundreds of thousands more affordable homes are compounding concerns. The Flood Reinsurance (Flood Re) scheme aims to ensure the availability of affordable flood cover for eligible residential properties, yet this is due to run only until 2039 – too close for comfort for insurers and lenders and does nothing for commercial property.
The gap in understanding
Quantifying risk isn’t straightforward. There is plenty of scientific evidence showing that actions such as restoring wetlands and enabling farmers to improve soil structure can reduce flood risk. This is often specific to certain locations. In the Cotswolds and Lancashire, for example, experts have been able to work out the fine-grain benefits of schemes that pay farmers to slow the flow of water. However, those benefits have yet to be turned into clear evidence of meaningful reductions in insured losses across property portfolios, commercial coverages, and regions.
It is important to remember that evidence that an environmental restoration project slows river flows or improves water storage does not automatically tell an insurer how much its claims might fall. The effect depends on the location, precisely what the action on the ground is, the assets exposed and the severity of the weather event.
Insurers already use sophisticated catastrophe models to assess risk. The question now is whether those assessments adequately capture how nature degradation is changing the damage a weather event can cause. Historical losses provide valuable information, but landscapes change. In short, the past is not a guide to the future.
So what should the insurance industry do, given the perils it faces?
Making the commercial case
Currently there is little direct incentive for a singular insurer to invest as part of their standard investment strategy. For insurers to help prevent damage systemically, there needs to be a clear commercial case – or a regulatory requirement to act.
This could mean demonstrating that the cost of prevention is justified by the potential reduction in future claims, encouraging changes in underwriting across the market.
Insurers and reinsurers could also pool funds to support measures that benefit them collectively. Regulatory changes could help by recognising proven reductions in risk when determining how much capital insurers must hold as part of their solvency requirements.
A first step could be for insurers to begin to officially recognise natural flood defences as part of their underwriting or climate modelling processes. Projects could then use this to identify where action could reduce losses for commercial entities, keeping their insurance available and affordable. We can start this in regions that are known to be high risk – such as parts of the Severn Valley, East Anglia and Yorkshire.
The good news is that work is already under way to support this. The FloodAction Coalition is working with Aviva, Allianz, and Zurich insurance companies to carry out these sorts of activities.
The United Nations Environment Programme Finance Initiative is also on the case. Its Principles for Sustainable Insurance initiative is developing a tool due to be launched at the global COP17 biodiversity summit in Armenia later this month.
Similarly, the ClimateWise group at the Cambridge Institute for Sustainability Leadership has developed a way to assess insurability across insurance portfolios.
At GaiaSicura, we are contributing insurance expertise and data to help lead the work of the above organisations in this, including the Green Finance Institute and their wider regionally focussed work. Our aim is to help improve understanding of the relationship between nature and insurance risk.
In November, I’ll be sharing what we’ve learned at the Nature Finance UK Conference in London, which will bring together financial organisations, businesses and policy makers to find practical ways of directing flows of private money towards nature recovery. This is a big moment for everyone concerned with ensuring a thriving economy and intelligent use of money from public, private and other sources.
For insurance companies like us, a key question is what evidence and funding arrangements would make participation commercially viable – and if there isn’t that commercial viability in the short term then what participation is currently possible.
I am convinced that by weaving natural features into landscapes, we can reduce the damage that will be caused by a changing climate. Restored landscapes can act like giant sponges, fire buffers, wind breaks, and filtration systems. While the brute reality is that they cannot eliminate the damage entirely, they can reduce it across entire systems, whilst addressing the core causes of the damage in the first place.
More than ever before, the environment’s woes are turning into insurers’ perils. That is of concern to the whole economy. While the news is stark, insurers can be on the front foot – protecting themselves, their customers, and vicariously the whole of society.
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