Coral reefs, mangroves, salt marshes and seagrass meadows can significantly reduce flood losses in coastal areas, according to a Swiss Re Institute analysis of data from the National Flood Insurance Program (NFIP). Swiss Re examined flood insurance losses in Florida from 2009 to 2022 that were caused by lower-severity events, such as storms up to Category 3 hurricanes, which constituted 40% of the NFIP coastal claims.

Swiss Re found that coastal habitats, like reefs, marshes and meadows, reduce insurance loss frequency from lower-severity storms by between 42% and 65%. “The mitigating effects of coastal habitats are significant, even when accounting for other flood risk factors, such as base flood elevation, property type and construction indicators," says Doris Pöpplein, sustainability markets lead at Swiss Re.

“Coastal habitats can attenuate wave energy during storm surges, acting as a natural barrier and defense against floods, reducing storm surge impacts and ultimately flood losses," Pöpplein explains.

In areas that enjoy a healthy coastal habitat, an average of 1% of insurance policyholders report a claim in a month of a flood event, compared to 2.8% of areas with less coastal protection, according to Swiss Re Institute's analysis.

Further, according to a 2021 study, “The value of U.S. coral reefs for flood risk reduction damages," by Borja G. Reguero et al, found that coral reefs provide the U.S. with more than $1.8 billion of benefits annually. Meanwhile, “Valuing the Flood Risk Reduction Benefits of Florida's Mangroves," by Siddharth Narayan et al in 2019, found that mangrove swamps saved $1.5 billion in flood damages during Hurricane Irma.

This means that the business case is strong for insurers and reinsurers to begin leveraging data on the presence of natural habitats, Pöpplein says. Companies can “integrate the benefits of nature into risk assessments … and guide investments into nature-based solutions," she says. “Coastal protection can contribute to more resilient properties and communities—and their insurability."

Unfortunately, degradation to habitats occurs all too frequently. A 2021 study from the U.S. Geological Survey found that degradation of Florida's coral reefs from tropical storm activity will result in expected annual losses of $385 million.

The insurance industry can support the preservation of ecosystems by offering insurance solutions that indemnify coastal habitats and allow for swift restoration after major storms, Pöpplein says.

In one example, Swiss Re, The Nature Conservancy and a regional government in Mexico worked together to provide parametric insurance to help preserve the Mesoamerican coral reef off the coast of the Yucatan Peninsula. The program provides coverage for reef restoration after events of a pre-defined wind speed.

“The interests of natural habitats, societal resilience and the insurance industry are well aligned," Pöpplein explains. “As an industry, we should continue to work closely with local stakeholders to support the preservation and upkeep of ecosystems, which play such a vital role in natural coastal protection."

AnneMarie McPherson Spears is IA news editor.