Turning to mangroves to improve insurability of assets

Insurers in the Philippines are collaborating to factor the value of mangrove forests into portfolios, underwriting processes and business development opportunities to improve the insurability of assets. Asia Insurance Review spoke to Earth Security’s Mr. Alejandro Litovsky and PIRA’s Mr. Michael Rellosa about potential mangrove projects in the pipeline. By Nadhir Mokhtar

Mangroves are not just a source of natural carbon capture and storage; they save an estimated $65bn per year in avoided losses from floods and storms and can be 50 times more cost-effective at resisting storms than building concrete seawalls according to research from sustainable finance firm Earth Security.

The firm said insurers and reinsurers have paid more than $300bn for coastal storm damages in the last decade and this is expected to increase by 10 times in the next decade as climate change proliferates. It has launched a report ‘Insurance Underwriting with Nature: How Mangroves Can Transform the Climate Strategy of Companies, Cities and Re/insurers’, that focuses on incorporating the economic value of coastal mangrove forests as natural storm barriers.

Considering mangroves for pricing

The report said recognizing and pricing the value that mangroves provide in damage limitation would give (re)insurers a competitive advantage by offering better-priced policies. It could also help provide cover for physical assets that would otherwise be considered uninsurable.

According to the report, coastal ecosystems have been found to reduce annual damages to property from extreme weather in the Philippines by 30%, saving up to $1bn each year. After strong typhoons hit the Philippines repeatedly, communities and infrastructure surrounded by mangroves have sustained fewer losses than neighboring areas where mangroves had been cleared.

Earth Security CEO Alejandro Litovsky said, “Insurers have shared that this would allow them to look at areas that they previously thought were uninsurable. I think that changes the landscape of how the sector can think about market development in a way. Twenty to 30 years from now, we’re going into a scenario where many areas that are insured will most likely be uninsurable. Mangroves are providing that extended shelf life of insurability. I think there is a possibility of lower premiums.”

Earth Security believes the (re)insurance sector could lead climate innovation by including the value of mangrove forests into CAT modelling and the development products for corporate and government clients. PIRA has convened a working group with Earth Security to collaborate on pilot projects based on the findings of the report.

“There are a lot of mangroves in the Philippines. We’re in the epicenter of typhoons. Most built assets in the Philippines are coastal or found near the coasts given the archipelagic nature of our country. So, a study that then demonstrates the productive value of mangroves, coastal assets against storm surges waves, will be a valuable tool in both risk assessment and loss mitigation … But underwriters are a cynical lot and my job is to get them to understand the value of that relationship,” said PIRA executive director Michael Rellosa.