Case Study: Pioneering Nature-based Insurance Products in the Philippines

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Published on
September 19, 2023

The profile of climate risks is rapidly changing. The severity and frequency of extreme weather events mean that re/insurance companies must consider ways of making the underwriting of their products more forward-thinking and sustainable.  One way of doing so is to recognise the value of mangroves as a form of natural infrastructure in insurance policies. This will help re/insurance companies, their clients and climate-vulnerable countries align the growth of financial opportunities with their natural assets. We created a re/insurance network in the Philippines, involving companies, experts and the regulator, who are working together to develop strategic Nature-based Insurance (NbI) products. The resulting insurance products are expected to reach the market in 2025.

“Nature-based climate adaptation is important for the country as a whole. But for the re/insurance sector, it is important because it could help reduce claims costs and make insurance products more affordable.”
- Allan Santos, CEO, National Reinsurance Corporation of the Philippines

Why mangroves matter to the re/insurance sector

Over the past decade, insurance companies have paid out more than $300bn for coastal storm damage globally. In the next ten years, this number is expected to multiply by ten.

Mangroves are what is known as ‘nature-based solutions’ (NbS); because in addition to sequestering carbon, they act as a type of coastal defence, protecting communities and infrastructure around the world. They save an estimated $65bn per year in avoided losses from extreme weather events globally.

The fact that their protection value is not currently recognised as a risk attenuation factor in the climate insurance policies of the re/insurance sector means a missed opportunity to incentivise their protection and deployment as a cost-effective solution to build climate resilience.

The Philippines is one of the countries most at risk from catastrophic weather events, with an estimated $5bn of national GDP considered at risk over the next ten years. Here mangrove restoration alone could yield $450mn per year in flood protection benefits.

In the coastal cities we assessed in the Philippines, our research suggests mangrove restoration presents a material “flood attenuation factor” – i.e. the difference in flood surge with and without mangroves. The approach developed is in itself new, and challenges the methodologies currently used by the majority of risk underwriters and re/insurers in the country.

The Philippines offers a business case for how a country that is highly vulnerable to climate change and abundant in mangrove ecosystems can make NbS a key vector of growth in sustainable investments. There is a role for financial services, including re/insurance, to apply this thinking in business development strategies.

A market that increasingly prizes green investments and climate resilience opens opportunities for action, despite having imperfect information. There is an urgent financial and moral imperative to stop the degradation and deforestation of these vital ecosystems, and to attenuate the vulnerability of coastlines, communities, and assets to climate change.

“We were not even aware of nature-based solutions before we were approached by Earth Security. They opened our eyes to the value of these natural ecosystems for insurance.”
- Michael F. Rellosa, Executive Director, Philippine Insurance and Reinsurance Association (PIRA)

Building the business case for Nature-based Insurance in the Philippines

In 2017, we partnered with the Philippine Insurers and Reinsurers Association (PIRA), to explore how NbS could be incorporated into the industry’s climate resilience strategy. This 5-year project was funded by Germany’s International Climate Initiative (IKI)

We engaged re/insurance companies, risk modellers, underwriters, scientists, and data providers, and developed a quantitative model and practical direction for re/insurance companies in the Philippines to begin to price nature effectively into their policies.

We hosted several workshops in the Philippines with PIRA and other partners such as the Asian Institute of Management (AIM), engaging industry leaders, environmental NGOs, and development agencies to align thinking and ideate practical solutions.

Published in June 2022, the resulting report: “Insurance Underwriting with Nature: Putting Mangroves on the Balance Sheet”, demonstrated how re/insurers could meet the growing need to contribute to net-zero goals and make climate-resilient investments by investing in mangroves as Nature-based Solutions that protect underwritten assets; reducing claims and insurance premiums.

“The Earth Security report convinced us of this idea, showing very clearly how mangrove forests equate to increased protection for coastal communities.” 
- Michael F. Rellosa, Executive Director, Philippine Insurance and Reinsurance Association (PIRA)

Our work set in motion industry-wide collaboration to: 

  1. Use open-source data to enable re/insurance companies to factor in the coastal protection afforded by mangroves when modelling risks and losses.
  1. Develop a common policy standard for national insurers and global reinsurers that acknowledges and accepts that natural assets can be factored into insurance policies.
  1. Develop mangrove insurance products and pilot them using a regulatory ‘sandbox’ approach in coastal municipalities.

"Moving forward, I see how this can lead to a more resilient Philippines. We are proud to say that we are part of Earth Security's efforts to promote nature-based insurance."
- Erickson Balmes, Deputy Commissioner, Insurance Commission of the Philippines

Creating Nature-based Insurance products

As an outcome of this project, a partnership between PIRA, and the German development agency GIZ in the Philippines will use this blueprint and move forward with product development in the Philippines. The project will be supported by IKI and involves the Philippines’ Department of Finance.

The project will pilot three mangrove insurance products - a general product for SMEs, one for infrastructure, and another for agriculture - all to be made available in 2025.

This partnership is a shining example of the many opportunities to develop tailored Nature-based Insurance strategies that contribute to net-zero and climate resilience at both national and global levels. We will continue our work to replicate, accelerate and scale this innovation internationally.

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