Natural habitats can reduce flood losses

Natural habitats such as mangrove swamps and salt marshes can offer significant protection against storms. We studied Florida's coastline, which has the most coastal property exposed to storm surge of any US state. Our analysis shows that the natural protection in these areas reduced the frequency of insurance losses from lower severity weather events from 2009 to 2022.

Our study analysed insurance claims sourced from the OpenFEMA data of the National Flood Insurance Program (NFIP) for flood events in Florida. A significant proportion of the claims came after lower severity storms (up to a category 3 hurricane) rather than high severity events, and we focused on these paid insurance losses.

By cross-referencing the claims data with our SRI Biodiversity and Ecosystem Services (BES) Index, we could isolate the expected risk reduction from the presence of coastal habitats, namely coral reefs, mangroves, salt marshes and seagrass meadows, by comparing the areas with highest and lowest natural protection.

Our results were striking: the best-protected coastal areas saw significantly fewer rates of insurance policies reporting flood claims per month. Even after accounting for other flood risk factors, we consistently found that the frequency of insurance claims approximately halved in areas of high coastal habitat protection.

Our findings corroborate other academic research pointing to the benefit of natural barriers in reducing the impact of storm surges.

Yet degradation of coastal habitats reduces the protection they afford. One Florida study estimated coral reef degradation will result in increased damages from coastal flood by USD 385 million annually. For the insurance industry, this suggests that preserving and supporting the ecosystems contributing to natural coastal protection offers significant value.

We see the interests of natural habitats, societal resilience and the insurance industry as well aligned. Insurers can work closely with local stakeholders to support the preservation and upkeep of natural coastal protections, which can contribute to the insurability of properties and communities. Insurance solutions can also help to indemnify coastal habitats and allow their swift restoration in the event of a major storm.