Operationalising insurance value of ecosystems

Topic description

Specific Challenge:

There is an increasing trend worldwide in the occurrence and severity of disasters. This trend will be further aggravated by global changes, including environmental and climate change ones. As a result, individual households, industry, private investors and public authorities are finding themselves increasingly exposed to changing and multiple risks. Ecosystems, through the provision of their services, can provide more holistic solutions to disaster risk reduction and to the mitigation of the effects of climate change, while serving multiple purposes. For instance, they can simultaneously mitigate the impacts of hazards, enhance social, economic and environmental resilience, and reduce the exposure and vulnerability of communities, businesses, properties and other economic assets.

To promote the uptake of ecosystem-based approaches for disaster risk reduction and climate change adaptation,, the theoretical and empirical exploration of the concept of insurance value of the ecosystems – the value of the sustained capacity of ecosystems to reduce or eliminate risks to human society and economic activities caused by global change or natural hazards – and methodologies for operationalizing the concept are needed.

The insurance value of ecosystems comprises both an estimate of reduced risk, due to the physical presence of an ecosystem, and of the capacity to sustain risk reduction (resilience of the system) under global change. The insurance value of ecosystems has so far been overlooked in research and practice: e.g. socio-economic approaches to estimating insurance value are poorly developed, methodologies for quantifying and qualifying the insurance value of ecosystems are still in their infancy, and relevant institutional and economic incentives to protect, enhance or restore this insurance potential are lacking.

Nature-based solutions, by means of their proper insurance capacity, can provide cost-effective solutions for disaster risk management and reduction, and for climate change adaptation, but can also be used for the protection, restoration and conservation of ecosystems and thus enhance the insurance value of the latter.

There is need for trans-disciplinary research on the insurance value of ecosystems, also involving legal, economic and financial expertise, to derive relevant quantitative assessments and propose ways through which such concepts can be practically used, for instance to provide incentives for promoting nature-based solutions in risk management and climate change adaptation agendas. Trans-disciplinary and participatory approaches including natural and social sciences and humanities are therefore considered necessary.

Actions should assess the potential of the insurance value of ecosystems and operationalize it in the design, development and implementation of risk reduction strategies. Proposals should aim to:

• develop methodologies and conceptual frameworks for assessing and monetising the insurance value of ecosystems and to integrate this into disaster risk management and climate change adaptation agendas. Analyse the qualitative and quantitative components and features of ecosystems needed to sustain the insurance capacity of ecosystems, including in urban areas. Provide evidence of the effectiveness of preventing further (ecosystem) degradation and of implementing nature-based solutions to protect, enhance and restore the insurance value of ecosystems, and for the potential of scaling-up from local to regional or other larger geographic scales;
• establish truly comprehensive participatory processes that engage all relevant stakeholders, e.g. individuals, industry, private investors, financial institutions and insurance companies and/or public authorities, in the evaluation, development and implementation of the insurance value of ecosystems taking account of the cultural dimension of the insurance value of ecosystems and people’s perceptions of risks and insurance;
• develop and validate reliable and evidence-based methodologies to quantify short-term and long-term costs, benefits and co-benefits, at different scenarios, of increasing insurance capacity of ecosystems;
• provide EU standardised data, methodologies and models for quantifying insurance value by translating risk reduction and adaptive capacity into (monetary and non-monetary) value for different actors;
• develop and validate innovative financial frameworks and incentives and recommend changes to legal and/or regulatory frameworks for maintaining and/or enhancing the insurance capacity of ecosystems.

Proposals shall address all of the above points.

Projects should foresee activities to cluster with other projects financed under this part of the call, and relevant topics on sustainable cities through nature-based solutions funded under the 'Smart and Sustainable Cities' call in part 17 of this Work Programme.

The Commission considers that proposals requesting a contribution from the EU in the range of EUR 5 million would allow this specific challenge to be addressed appropriately. Nonetheless, this does not preclude submission and selection of proposals requesting other amounts.

Projects are expected to contribute to:

• providing a robust scientific underpinning on the quantification, qualification and valuation of the insurance value of ecosystems to enable its full operationalization;
• integrating ecosystems insurance value into conventional insurance policies, leading to lower premiums for land and property insurance policies and decreased public costs for risk management and reduction;
• developing new public and private sector insurance models for resilience;
• increased participation and commitment of insurance companies to maintain or enhance the insurance capacity of ecosystems through innovative business models;
• increased deployment of multi-purpose and flexible, nature-based solutions by contributing to the development of policies that maintain or enhance the insurance capacity of ecosystems
• creating new business models that involve insurance companies in restoration activities;
• enhanced natural capital;
• creating business opportunities and a market for the preservation, restoration and protection of ecosystems and natural capital;
• supporting the objectives of the EU Adaptation Strategy^[1], particularly concerning the promotion of climate resilient investments and decision-making in the public and private sectors and the priorities of other EU and international policies, such as the EU Green Infrastructure Strategy and the Sendai Framework for Disaster Risk Reduction, where this is relevant.

Socio-economic science and humanities

[1]An EU Strategy on adaptation to climate change, COM (2013) 216.