When insurance isn’t enough: WWF and the insurance protection gap

When disaster strikes, insurance may pay some of the bill. But who pays the rest?

This week on Shaken Not Burned, Felicia Jackson talks to Regula Hess, deputy head of WWF Switzerland, about the growing insurance protection gap — and why it matters far beyond the insurance industry.

When losses aren't insured, they don't disappear. They fall on households, businesses and governments, affecting everything from mortgages and investment to public finances and the speed at which communities recover. 

But WWF argues that simply expanding insurance isn't enough. Insurance can spread the cost of disasters; it can't stop the underlying risk from growing. That means reducing risk too — including protecting the forests, wetlands and other natural systems that can reduce damage before it happens. 

Regula describes insurance as an early warning system: when risks become unaffordable or increasingly difficult to insure, perhaps we should pay attention to what that is telling us. 

There is, of course, an obvious question. If preventing damage makes so much sense, why aren't we doing more of it? Part of the answer is that prevention is difficult to see. Yet research cited by Regula found that every dollar invested in climate resilience and preparedness can save communities up to $13 in damages, clean-up and wider economic costs. Which is why her description of insurance as an early warning system stayed with us.

When insurance becomes unaffordable, or risks become too large or unpredictable to insure, it is telling us something. Not simply that there's a problem with insurance, but that the underlying risk is getting out of hand. Perhaps the real protection gap isn't just between what we lose and what insurance pays — it's between the risks we're creating and what we're doing to prevent them.

This episode is the second in our latest Shaken Not Burned arc on the changing economics of risk. 

Last week, our conversation with Dr Robert Johnston explored how water risk can build through decisions that might make sense individually, but can add up to something much more damaging. And why failing to recognise the full cost of those decisions doesn't make the cost disappear.

As part of the series, we will also speak to Rachel Delhaise from Convex about the insurance market itself and what happens when a changing climate makes the past a less reliable guide to the future.

Finally, co-hosts Felicia and Giulia will put the conversations together and ask what they tell us about where risk comes from, where the costs eventually end up, and what choices we still have before they do. 

If you enjoyed this episode, subscribe to our newsletter and follow us on LinkedIn, TikTok and Instagram – and why not spread the word with your friends and colleagues?

Transcript

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Felicia Jackson (00:07)
Hello and welcome to the latest episode of Shaken Not Burned. Today we're going to be talking about insurance.

One of the big challenges we face is that climate change and nature loss are actually undermining the insurability of economies, widening the gap between total losses and insured losses. That's not just an insurance issue, it's a systemic economic and financial stability risk. Recognizing that reflects a truism that most of the systems we rely on only become visible when they stop working, when shocks aren't absorbed,

when recovery slows down and when we see disruption begin to spread rather than settle. Climate change and nature loss are testing those systems in ways they weren't designed for. Not just through bigger events or worse disasters, but through how those events move through the economy. One of the signals of this is the insurance protection gap, not just as a metric.

but as a sign of the growing mismatch between the risks we're creating and the systems that we have to absorb them. Because when losses aren't covered, they're still there. The cost of those losses moves on to households and businesses and governments. And that's where this becomes a system question. So today, we're going to talk about what's driving the gap, why it's accelerating, and what it tells us about the resilience of the systems we depend on.

Today we're lucky enough to be joined by Regula Hess, who's the Deputy Head, Sustainable Finance at WWF Switzerland, who led the research for WWF's recent on tackling the insurance protection gap. Regula, welcome to the show. Could you introduce yourself and tell us a little bit about how you got to where you are today?

Regula Hess (01:45)
Yes, thank you for having me. And I must admit, I'm a bit myself a podcast addict. So it's a real pleasure to for once be on the other side of the microphone. So for a bit about myself, I worked for quite a long time on financial market regulation.

But sometimes I wasn't quite satisfied with the project I was working on. A lot of it was about creating more competitive financial markets. It often meant supporting some dubious innovations in

the financial market. And since I'm a little girl, I've been drawn to

the climate and nature and also I think just big challenges And for me, it was then quite natural that, if I have the possibility to contribute in some little tiny way to solving, our biggest challenge of our times, namely a climate change and nature loss, well, I should try to do that. And therefore found my way to WWF.

which is really quite an incredible organization that works both on the grounds, protecting nature and then trying to tackle the drivers that drive nature loss and climate change. And here I am working on the driver of finance to hopefully direct money to what we need more, all the green investments rather than fossil fuel and all the gray investments.

Felicia Jackson (03:19)
that sounds fantastic and I'm very much looking forward to digging into this. I think the first question, is what role does insurance play? when disasters happen, we can see that some communities recover quickly and others struggle. from your perspective, what role does insurance play in determining which of those is going to happen?

Regula Hess (03:37)
So I propose that we might do a small thought experiment. Let's

Felicia Jackson (03:42)
Okay.

Regula Hess (03:43)
think that we are house owners and once we are hit by a flood and we have no insurance, no help, nothing at all. Once we hit by a flood and we get some help from the government and maybe some aid organizations. So then once we hit by a flood and we actually get the whole

money that we need to rebuild our house from the insurance company. So now, if we start with this worst case scenario, our house was destroyed in a flood and we get no help. Actually, probably our entire wealth is destroyed because most people, if they have a house, that's their wealth that they have. And so in just a minute, maybe our whole generational wealth is lost. We probably struggle go to work. Our kids

can't go to school. And we really just in a situation of despair, where we have no money to deal with our emergency, a lot of emergencies to deal with. And even if we kind of start to get back on our feet, the loss of all our wealth will depress our disposable income, not just only for years, but for decades. If we now think at least we get some government aid, some NGOs help us,

That's really useful and it can alleviate some of the challenges we're facing. However, we see that, for example, government programs, they often take years to be fully paid out because they require people to fill out forms, fill out proofs, maybe of documents that they don't even have access to anymore. So it takes years for us to access money and to have the sort of money we would need to rebuild our homes.

Now, if we go for the insurance situation, often insurances, want to be customer friendly. So they have some sort of way of providing money quickly to their customers. They maybe even have some programs so that you take early action to limit the damage and then you get maybe can already limit the damage a little bit and then you get access to money much quicker.

And this money helps you to get to the initial hardship, maybe also quicker to move on to a new job and much quicker to rebuild your home. Or even if it's really an area that becomes too risky, also allows you to move to a different place and really start over with a huge amount of money rather than starting from scratch. And therefore,

economic activity can pick up much quicker. And this is what we see also in the numbers. So the Bank of International Settlement, they did some analysis and they came to the conclusion that, you know, overall broadly, climate and nature related disasters, they have an impact on one of 2 % of GDP upon impact. And then the output decreases even

2 to 4 % of GDP on top of that initial impact over time. And how big that is, is really driven by how much of the losses is uninsured.

Felicia Jackson (06:47)
Right. Now, and that actually brings me to a really key question here, because I think it's really easy for people to understand the immediacy of a shock, the loss from a flood or a wildfire or whatever it might have been. But I think what's interesting is this idea that the impact is more than doubled further down the line. So if that impact of the event extends beyond insurance itself,

How does that play out? How does the lack of insurance affect things like the financial system and housing and mortgages and businesses and public finance? How does that actually work?

could you give us one example of what that looks like?

Regula Hess (07:24)
So as we spoke before, an event maybe prevents you from going to work and therefore you lose income and that depresses your purchasing power for quite a long time. The same is true for companies or hotels. Let's imagine a hotel is hit by a storm. It maybe has to close for years and then all the employees lose their work. Speaking more about the economy and the financial sector.

We also see that if the insurance protection gap grows, this can become a risk for lenders because a mortgage is much riskier if the underlying assets is not protected by an insurance contract. And even for larger projects, it's a case that if they're not insured, they also do not get financed. So we can depress investment in future economic activity.

Felicia Jackson (08:16)
what you're saying, correct me if I'm wrong, is that...

The insurance protection gap is one that as it grows undermines economic resilience and our ability to recover at an individual but also at a national and economic level.

Regula Hess (08:30)
Yes, yes, for sure. And you even see it in, for example, debt sustainability. Because if you have a large protection gap, the government needs to help more. And actually politicians, I think for good reasons, they're inclined to help if a disaster happens. But if the public has to spend billions and billions again, again, this increases sovereign debt. And we have seen several cases in recent years, for example.

in after the Bangladesh floods that governments had to restructure their depth because they run into so many troubles.

Felicia Jackson (09:06)
And the more expensive the sovereign debt is, the less money there is available to build resilience. So I see that as a major problem. I think one of the things I just want to take a step back with, the report talks a lot about the insurance protection gap and you've mentioned it. What does that actually mean and why is it such an important issue in the context of climate risk?

Regula Hess (09:26)
Well, at that very basic level, The insurance protection gap is the difference between total losses of an extreme weather event and the part of the losses that is insured. And I think it's important just to keep in mind that this gap is not some unified number, but it is different for every hazard. So in one area,

You could, for example, have quite good coverage for wildfire risks, but very bad coverage for floods. This often has historical reasons because maybe one risk was more important for an area than another and therefore got more attention. However, what is tricky now is that climate change and nature loss, they shift these perils into new areas, also in currently with.

areas, these become high risk areas and people are not aware of that shift and still don't buy insurance. And therefore, kind of the protection gap that is not as important when the risk is low can become much more important if the risk grows. Also, interestingly, when we looked into this notion of protection gap,

and the numbers that are published around that, mostly from reinsurance companies, we realized, it's not kind of a very clear cut science. We know a lot about the insured losses and we can estimate that amount quite confidently because these are the claims paid out by insurance companies and insurance companies know how much they pay out. However, the total losses are much more

just a very broad estimate. And in this particular case, it's often a lower estimate, excluding many things. First, there's some direct losses that are not accounted for, most importantly, the losses to nature. If an extreme weather event destroys a forest, mangroves, or burns down a forest, this is not accounted for, even that's a huge amount of public wealth. And the same is often true for other

also human built infrastructure that is publicly owned, that is not accounted for in these total losses. And then all the indirect losses we talked about before with income or then, you know, kind of depressing economic activity, all this is not accounted in the total losses. So if we kind of want to grasp that gap that the society and businesses and government are facing in the face of

these events, is much, much bigger than these reported protection gaps.

Felicia Jackson (12:04)
And

what are the main drivers behind the gap growing? Because we know that the amount we're losing in direct losses is much larger.

than is being reported. But why is the gap growing? Is it that disasters are getting more expensive? Is it that insurance is getting more expensive and people don't want to take it out? You mentioned that sometimes people don't even realize how much higher the risk is where they're living. are there structural problems in insurance systems? I'm interested in your thoughts on why the gap is getting bigger.

Regula Hess (12:35)
Yes, sure. So there are really a lot of factors contributing to kind of either side of the equation, the total losses and the insured losses. And for example, they also include the amount of buildings in high risk areas or the replacement costs. But structurally, I think the most important drivers are the risks.

due to climate change and nature loss. So if the likelihood of a lot of rain within a short timeframe increases due to climate change, the expected losses from floods or landslides increase. Or if the same amount of water is not absorbed by healthy soils and wetlands and slowed down by tree canopies but runs off quickly into canals and sewage systems that overflow.

the expected of losses rise as well. So this illustrates how also nature is driving the losses. So then coming to the question, you know, why are these losses then not covered by the insurance industry? And we see there many market failures actually. And this is also why insurance is such a regulated market all over the world, because

If you just leave the market to its own, like it never works. And to mention just a few of those market failures that also at play here is first, we also already spoke a little bit about that is this missing risk awareness. And for some people also an optimism bias. even either people are not aware that they live in a risky area, or they're not aware that the risk has shifted or they just

optimistic that while the risk may have increased, will not hit them. And this kind of decreases the demand for insurance.

Another challenge is the affordability of insurance coverage. As the risk increase, also the premiums increase. And this makes insurance unaffordable in risky areas.

For example, in Australia, 15 % of homeowners pay more than one month's income on annual premiums. That's huge. So it's not surprising that in a survey, it was concluded that 20 % of Australians now decided either to not buy insurance at all or to be importantly underinsured.

Felicia Jackson (15:08)
right.

Regula Hess (15:09)
And then lastly, increasing risks also affects the availability of insurance. Some areas just become too risky for insurance companies to even want to offer an insurance coverage.

Felicia Jackson (15:22)
that's interesting because obviously we've heard about insurers withdrawing from certain regions or certain types of insurance because the risks are too high. Certainly in the UK, you know, we've got a national flood insurance program for buildings that are built in floodplains. But at what point does a risk become too difficult for insurance markets to actually absorb?

Regula Hess (15:46)
in a few different factors that can lead to them. One of the reason is that insurance companies in their risk management, they need to limit the maximum losses they suffer from one specific event. So even if people or businesses would be willing to pay very, very high premiums, there is just a limited appetite of insurance companies to

cover many people or businesses in such risky areas. Otherwise, their book becomes too concentrated.

another challenge we are facing now with these risks is unpredictability. Insurance relies on the fact that risks on the aggregate are predictable. They're not predictable for the individual, but all the aggregate. And that's way they can price them.

With now the Earth system becoming so unbalanced, risks become more more unpredictable and the models that insurers use that are mostly based on past data, they're just not working out anymore. And so if they can't estimate the risk, then they don't know how to price it and they rather stay out of it.

Felicia Jackson (16:55)
to me, it's a very telling signal that that is what is driving withdrawal from the market, this lack of predictability. Because there is a reality that I think many people are uncomfortable in accepting is that we are living in a state of increasing uncertainty. It's not just about climate events, but almost everything. We've got technological disruption, we've got geopolitical disruption, and climate change and nature loss.

are drivers of volatility in a way that we just haven't really managed to cope with. I think historically, insurance has almost been that way that you socialize loss. Everybody pays a bit. You hope that as a whole, societies or communities can survive these disasters. So I think the question for me is when insurance actually disappears from a region,

Who carries the financial burden? Who pays for it? Is it going to be households, businesses, governments or somebody else?

Regula Hess (17:50)
Well, it's all the ones you just mentioned.

Felicia Jackson (17:52)
Okay.

Regula Hess (17:54)
And I think what is important to point out here that if there is no insurance, this process just gets really messy. And it's done, you know, some losses absorbed by businesses, other by governments, also how they divided between households and governments who gets how much help. It's just a messy process.

And the messy process is that often unfair. And as in many processes, kind of the more remote areas or the more marginalized group get less help than the more visible ones, the ones with the best political connections. So this, could say that in some way also the access to insurance can make the process of recovery fairer.

Felicia Jackson (18:36)
Now that makes a lot of because there is this question about who has access to what and who has access to different types of finance. And it's fascinating to me you mentioned marginalised communities because I think there is an assumption That the protection gap is particularly large in the global south. But that there are across the global north communities which...

are suffering from that protection gap as well. But I think it's worth turning to why the insurance protection gap is so large in many of these economies in the global south, because we know the risks are often higher. So you would think you would need more insurance. So why is insurance coverage so limited?

Regula Hess (19:15)
Yes, excellent question. And you're totally right that in many developing countries, the insurance protection gap is actually above 95%. But important to note, the same is true for some European countries as well. And so I think I like the notion that Robin Douglas, who served as an advisor to the report, he mentioned during our launch event at the World Economic Forum that

Insurance is fundamentally a social institution and there are many prerequisites that the social institution can work. And so first,

even to pay into insurance, you need to have money to spare because you pay into a pot with complete uncertainty if you ever will need it. If you just live a living at the limits, you're not able to do that. And then second, to put your money into the insurance pot, you need to be comfortable

confident that when you need it, it's still there. And without really good insurance regulation and enforcement, there is a risk that if a big disaster hits, there is not enough money in the pot for everybody. Therefore, you need good financial regulation and also the rule of law, because you need to avoid that some insurance officials just do not take the money and run.

On top of that, you need also the rule of law that, for example, protects against insurance fraud, that you can't just go to the police and give them a bribe and say, can you please sign this note that my car was stolen? And then we kind of split the money from the insurance company. and though there are these really kind of fundamental political, economic, societal institutions that to some degree also come

together as trust that our.

Felicia Jackson (21:11)
was just

thinking about institutional trust because without that you can't have a functioning market.

Regula Hess (21:16)
that's exactly true. So you need that trust as a prerequisite to build insurance on top. And then the second structural challenge is the size of transactions. Because each transaction and each claim comes with quite some overhead. And if the transactions and claims become very small, then the overhead is just disproportionately big.

and people don't want to pay as much for their insurance. It's kind of the overhead that makes that an insurance is maybe three or four times as expensive as to do self insurance. You wouldn't buy it. And this is one of the really, really major challenge for, for example, smallholder farmers. And what we see are practically two main ways of dealing with these challenges. One is the

parametric insurance schemes, insurance is paid out based on an external factor that can be objectively measured and to overcome all these challenges around measuring the indemnity, being sure that it has occurred, etc.

And then I think another strategy we see is to purchase insurance at the government level so that the transaction or maybe at the city level so that the transaction becomes big enough to make sense and that kind of the city can disperse the money to its population.

Felicia Jackson (22:42)
That seems to make a lot of sense.

Regula Hess (22:43)
Yeah, sure. I think it makes a lot of sense. It's just sometimes I think it's seen a bit as a silver bullet, even though other things would need to follow. And most importantly, the risk prevention or also incentives.

Felicia Jackson (22:59)
That's exactly

where I wanted to go with this because I think we know that governments are stepping in, whether that's a national government or a regional government, a municipal government, but there are trade-offs to that. And I do wonder about are we looking for solutions that are enabling a growth of insurance coverage without actually reducing the risk that requires the insurance coverage?

Regula Hess (23:23)
Yes, I think in many instances this is unfortunately the case. And this is one of the reasons why we actually wrote the report, is that we have seen in recent years also in countries like Greece or Italy that insurance schemes were introduced, but no scheme to reduce the risk was introduced in parallel.

And then, for example, if you take the situation of Greece, they introduced an insurance mandate for companies. And the date, it came into effect. There were several thousand insurance companies just saying, well, I don't have access to insurance. I don't find any insurance. And this is because there was no effort to also decrease the risk in a manageable way. And this goes also, for example, I think, parametric insurance in

in some countries, for example, we have to be very careful with the incentives you can create. If you, for example, cover small holders, but just for a few crops, you can create incentives that they plant large monocultures or larger monocultures of these crops that you ensure, rather than maintaining their very diverse farm that is actually resilient.

and you drive them into a more maybe industrial way of farming that can become less resilient over time. So we need to make sure, however we build an insurance system, that the incentives it creates are very well understood. And then whenever these incentives are not desirable for the overall resilience of the society, there are some mechanisms against it. I recently read

about the insurance scheme I liked. the climate insurance coverage was tied to the implementation of a climate adaptation plan. And this is, think, the direction we need to go to couple these things into one system rather than looking at them

Yeah, separate things.

Felicia Jackson (25:21)
for me, that is the key thing that needs to be discussed, that needs to be understood in the same way almost every aspect of sustainability suffers from, which is that people tend to try and solve problems in silos without thinking about the knock-on effects. Because you mentioned resilience, and we talked earlier about the ongoing financial impact of disasters. That is about the resilience of an economy.

But if you haven't got a resilient ecosystem or resilient food system underneath that, you're just going to create other problems. I think one of the things then, because you mentioned Senegal, do you think that it's new financial tools that we need? A lot of the things that are being discussed are public private insurance schemes or risk pools or even climate finance. But do you think it's

new tools that are the most likely to solve the protection gap? Or do we need to actually accept that there are limits to what insurance can do and look at how we take a more integrated approach to how we solve the problem?

Regula Hess (26:26)
Yeah, I mean, for sure. Like, I agree with the last part that you just said, because that's also what we propose in

Felicia Jackson (26:34)
Okay.

Regula Hess (26:35)
our report. We of we propose this strategic framework around the insurance piece to solve the problem more sustainably. And I think

at the basic level, what is relevant is if you only focus on insurance, you're just redistributing costs over time and between people. And if the costs are just increasing, this is unsustainable. And next to that, I also think it's important to always remind us when we talk about economics, it's also lives. People actually die.

in these events, people lose their relatives and communities are displaced or people are injured for life. So not only for economic reasons, but also for livelihoods and the dignities of people is essential that we reduce the risks rather than just kind of let it happen and then distribute the costs. And what we propose in our framework is

We should never in these discussions forget the underlying cause of climate change. So if you come up with a scheme, especially in advanced economies, these, for example, public-private partnerships, they should also have some sort of alignment with reducing climate change. One mechanism that we propose is to say whenever you have a public-private partnership that to some degrees,

has some public support or like the public is covering some of the risks, you should also pose some requirements to insurance companies. You should require them to have transition plans that align with climate and nature goals and not to contribute with their business to the risks that they then ask the policy makers to cover. Another idea that is currently proposed

in the legislative body in Connecticut is also interesting. It's to finance a resilience and adaptation fund with taxing fossil fuel insurance. So this is more than idea of polluter pays for adaptation and resilience. And I think there more and more of these ideas coming up. How can you align the insurance system more with incentives?

for stopping climate change.

And the second piece is the one on adaptation and resilience that also needs to be built into the system. So, for example, in France, there's quite an elaborate Natscat scheme. It's also supported by a state-backed reinsurer that creates quite affordable premiums at around 41 euros per year.

However, one component of that system is that regions must have climate adaptation plans. They must have reasonable zoning and building codes, etc. And if a region doesn't do that, then the premiums can be substantially. So within the system, is this incentive, well, you need to invest in adaptation and resilience. Otherwise, you're the

that your constituents have to pay will increase. And I think these kind of incentives are crucial for the long time and resilience of the space. they are just coming from WWF. It's also always important to mention that nature offers many, many functions

Felicia Jackson (30:10)
My next question was actually going to be about the role of nature, but

when you talk about insurers actually having responsibility, it is this thing that insurers don't just provide insurance, they also invest, they're asset managers, so they're making choices about where they put their money. When you talk about adaptation,

This point about insurance is about redistributing cost over time. And I think that's something that needs to come into the conversation that we actually have to look at timeframes that may not necessarily align with immediate commercial or economic timeframes. when you look at lenders, they're looking at returns over three, five, seven years, maybe a bond is over 12, 15. That

element, the temporal element really isn't included. when you mentioned the loss of life, the loss of human dignity, these are things that aren't factored in. the trouble is that sometimes you don't want to account for something because it sounds and feels like you're financializing it. But actually for me, it's about redefining how we value things.

because things like human life, human dignity, the ability to have clean air and clean water, these are fundamental requirements for anything to function. So that brings me to this question of nature, because one of the problems we've always had is that corporate operations function with a lot of externalities. They damage nature, they pollute, and those costs are not necessarily included in the cost of doing business.

those costs have been socialised across economies and individuals. To what extent are we actually underestimating the role of nature? You know, things like coastal ecosystems or forests, both of which you've mentioned, in reducing risk, because if we're focusing on the need to reduce risk, surely one of the most important things we need to do is protect nature. And I suppose if we're looking at it from

the point of view of the economy, what happens to insurance systems, what happens to the insurance industry, when the natural protection we've got isn't there anymore?

Regula Hess (32:09)
Yeah, you're totally right that we underestimate the role of nature and coming from a nature focused organization can become quite frustrating. For example, recently I looked at some sustainability reports of insurance companies and at least here in Europe, now they have to assess the materiality of different risks to their business. And often nature is not even

Does it even get to the assessment stage? It doesn't even figure in the table where they say whether it's material or not. It doesn't even get over that hurdle. And this is really.

Felicia Jackson (32:45)
That's crazy, sorry, but that is

crazy because an economy doesn't exist without nature. We literally exist within nature.

Regula Hess (32:52)
Yeah, yeah, you're totally right. Just as a side note, I'm always also get a bit frustrated with this oval number from the web, think, on over 50 % of the economy relies on nature. And then I ask people, where is 50 % of the economy on Mars? Like, show me.

Felicia Jackson (33:12)
Yeah, absolutely.

Regula Hess (33:14)
There is no there is no economy without nature.

Also, if you look at certain events, extreme weather events, like for example, let's take the flood in Valencia or the wildfires in California, they're immediately seen as a climate event. And for sure, they're driven by changes in the climate. However, it's not understood in how far nature

served as a buffer on an amplifier of these underlying climate conditions. For example, in California, we know that the aquifer has been depleted for years, but we don't know kind of the effect of that then on the likelihood of the wildfire. Or in and around Valencia, a lot of the hill were deforested and replanted with monoculture olive.

plantains that have just a barren, very compact, dry soil, well, rather run off quickly. They had a lot of canals that speed up the water into the city. And they also found an important percentage of their wetlands. And we don't understand how much that contributed in how quickly the masses flood into the city.

And there, yet there is still like a long way for the insurance sector, I think everybody to go to understand it. However, I think it's also important to say that we have also some estimates and I think, we should maybe work with them more often to give you two examples.

It's estimated that the wetlands on the US coasts account for 23 billion of storm protection each year. And this is just their value for storm protection. Then these wetlands, of course, have additional values for being a habitat for endangered species, or also present an area for recreation for human beings.

And as we know now, wetlands are very important storage for greenhouse gas emissions.

Felicia Jackson (35:30)
course. And are all

the details of the estimates and how they're made in the report? Excellent. I'll

Regula Hess (35:35)
Yes, they are in the report.

Felicia Jackson (35:37)
make sure I add that to the show notes as well.

Regula Hess (35:39)
another example, we expand a little bit in the report with a small case study, is the case of protective forests in the Alps. So the mountainous area in Europe. It is very interesting that in the Alps, so-called protective forests were institutionalized. Here in Switzerland,

We have the first legal certificate of forest being protected for disaster risk reduction from the Middle Ages. And now today, 50 % of the forests in Switzerland are designated protective forests. And the landowners, get money from the local and federal government to protect that forest. They also get, to some degree, get compensated for opportunity costs.

And then it's estimated that these forests provide four billion each year in protection to Switzerland. And four billion is quite a big number for a small country. And on top of that, I think what is crucial, it's estimated that over a hundred year timeframe, maintaining a forest is 25 times cheaper than creating a human made structure. So if you have to

set up a net against rockfall or some structure against the avalanches, this is 25 times more expensive than having a forest in that place.

Felicia Jackson (37:09)
What's incredible to me about that is that that's not common knowledge because it is that thing that we need to understand the costs and the trade-offs and the timeframes if we're actually going to make sensible choices. But what you're telling me

is these models exist and have existed for hundreds of years, that we can show the value of protection over intervention. And that still doesn't seem to be getting through I think one of the things that that says to me is the protection gap and the fact that it's growing, is that a signal to investors and decision makers that they need to do something differently?

Regula Hess (37:45)
I'm not sure if it's the protection gap per se. I think the most politically powerful thing is when people can't not get access to insurance and then they knock at the door of their politician. I think these stories really move policymakers. Also, if they knock at their door and say, can't afford insurance anymore.

though it's these kind of more the political pressure the affected group creates, is maybe even disproportionate to the actual numbers in the aggregate. politicians, they tend to listen to their constituents because, yeah, that's who votes for them. And we see that also, for example, in the US, we have

You know, I can't tell you details, but we have politicians that you wouldn't suspect calling us about the report because it's not an ideological issue. It's a real problem for them.

Felicia Jackson (38:47)
that is fascinating because what tends to create change is when something we have seen slowly as a gradual trend suddenly becomes a problem abruptly. That's when politicians tend to act.

I think what you're talking about is really a need for reframing what we understand by insurance and what it's supposed to do and how we need to integrate insurance into resilience building for it to be effective because you've got to identify the risks and then mitigate the risks. what I would love to know is if listeners took away just one idea about the role of insurance for resilience in a changing climate.

why it matters, what is it that you would really want them to understand?

Regula Hess (39:27)
I think it's just a bit what you just mentioned now is that insurance in our current system works a bit like an early warning system. And it is currently signaling that something is getting out of hand. And so if the risk is so large and unpredictable that they cannot be reasonably insured, it is a wake up call that

we need to tackle the underlying risks and not just the insurance system. So what we would really like people to understand is that insurance needs to be complemented with this wide range of activities for risk prevention and that nature has a central role and is a really good ally for that.

I think one set of numbers I always like to point out to people and we didn't really get there is, why do we not act even though it makes so much sense? To that we got, the problem is that we're often talking about avoided costs.

avoided costs

are not visible anywhere. Kind of a disaster that did not happen doesn't bring you political credit. Unfortunately, like if there is a disaster and as a politician you solve it efficiently, that gets you re-elected. If there is something that doesn't happen, maybe somebody blames you for having invested too much in resilience.

Because it's not happening. Why did we spend all that money? So this is really one of the major, major challenges. actually, insurance helps us with the pricing of the risk to see some of these avoided costs. And just to give you some numbers of the payouts of an investment in resilience adaptation in 2024, the US Chamber of Commerce, they

found that every dollar invested on climate resilience and preparedness can save communities up to $13 in damages, cleanup, and economic impact. mean, a 13-fold return, that's huge. You can't make it with any financial investment. And similarly, in the UK, there was an analysis that concluded that every pound invested in flood risk management prevented eight pounds in damages.

including three pounds in direct savings to the government. So even the government alone makes a return on that investment and the society on top. There are these enormous benefits for investing in adaptation and resilience, and we should really make use of that.

Felicia Jackson (42:06)
really glad you mentioned that because I do think there is so much research about the return you can get from investing in resilience. But it's really hard to quantify in the financial system we currently have because lenders want to see financial streams that they can say, right, I know that income is there, therefore I'm prepared to lend you this money, for example.

Whereas a lot of the benefits of resilience are much harder to quantify, but they are there. It's not just avoided loss, it's carbon sequestration, it's nature protection, it's health, it's education, it's economic growth, really what you're talking about is the fact that the insurance gap is that signal that says we need to look.

how our systems work, at what we value and how we understand what has to go hand in hand with insurance in order to manage the uncertainty that we face.

this is not just a gap in insurance coverage. It's a gap between the risks that we're creating and the systems that we have to actually manage them and prevent damage.

So as I said, thank you so much for joining us today. It's been brilliant.

to our listeners, I hope you've enjoyed the conversation. I hope you've learnt a lot, lots more in the show notes. And thank you for listening. Don't forget to like and subscribe and we'll be back soon.

Regula Hess (43:21)
Thank you.