In a recent interview with Insurance Day, Dr Nicola Ranger, Director of the Resilient Planet Finance Lab at the Environmental Chance Institute (ECI) urged re/insurers to change their mindset from expected loss to expected gain.
The real currency of adaptation and resilience is natural capital, says Dr Ranger, who is also co-chair of the Resilient Planet Data Hub (RPDH) at the University of Oxford.
She says to unlock the flow of capital needed for climate adaptation and resilience projects, re/insurance principles must be placed at the heart of global finance.
An accelerator research and innovation programme, the Lab sits with the RPDH under the Resilient Planet Initiative (RPI) being developed by the UN Climate Change High-Level Champions.
In the interview with Insurance Day, a news service provided by maritime data, insights and analytics solutions firm Lloyd’s List Intelligence, Dr Ranger stresses the value not only of risk metrics but impact metrics. She said:
We’re used to talking about the negative externalities for climate mitigation. Paying a price for the negative impact your actions have on others. But we need to start talking more about pricing in the positive impact of adaptation. To accelerate adaptation, I want to see the industry lead in pricing in the positive externalities of insurance and investing in resilience, as well as the risks of climate change.
The traditional insurance mindset is how to measure loss reduction – when we buy an insurance policy or invest in resilience, the story is always the risks that will be avoided. But this story is failing us – both the industry and society. We need to flip that mindset on its head and start building a set of metrics that capture the positive benefits of adaptation both for the insured and wider society.
Insurance and adaptation are fundamentally positive investments with substantial ROIs [returns on investment] – unlocking investments, jobs, poverty alleviation or food security."
Dr Ranger explains how she and her colleagues at the University are already doing this. To mobilise finance into mangroves, for example, they are building a set of metrics for insurers and investors that capture the potential positive return on investment for business, local communities and government. From there, they can work with financiers and governments to structure ways to mobilise finance effectively, she adds.
Read the full article in Insurance Day.