As flood losses continue to rise, governments, communities and insurers are looking beyond traditional flood defences for new ways to manage risk. Nature-based solutions (NbS) such as floodplain restoration and reforestation are increasingly being used to slow, store and manage flood water. They can also provide wider environmental benefits, from biodiversity enhancement and improvements in water quality and availability to carbon sequestration.
But for insurers, an important question remains: can the benefits of NbS be measured in a way that supports underwriting, pricing and investment decisions?
To explore this question, Howden Risk and Resilience, Eco-Links Connexus, UC Berkeley Center for Law, Energy & the Environment (CLEE), and JBA Risk Management partnered to quantify how NbS influence flood risk, expected losses and insurance outcomes.
The results suggest that, where appropriately designed and located, NbS can reduce flood losses, providing stronger evidence for nature-based resilience investment.
Insurers and nature-based flood solutions
As the climate warms, flood is becoming an increasingly important risk for insurers worldwide. As losses rise, there is growing interest in measures that can reduce risk before a flood occurs.
Traditional flood defences such as levees and flood walls remain an important part of flood risk mitigation. However, they can be expensive to build and can be detrimental to the environment.
NbS are flood resilience measures designed with a different approach. Rather than preventing water from reaching a floodplain, they work with natural geomorphology and ecological processes to slow, store and manage flood water.
Upstream NbS aim to slow rainfall becoming runoff with measures including leaky dams, soil management and reforestation of the catchment. Downstream NbS create space for water with measures like levee setbacks to restore the natural floodplain, wetland restoration and the protection of open space (Figure 1).
These approaches aim to reduce flood depths downstream, delivering wider benefits for communities and nature, such as biodiversity enhancement, improved water quality, and improved ecosystem health.
For insurers, the key issue is not whether these measures work in principle. It is whether their impact can be quantified in a way that demonstrates a measurable reduction in flood risk and loss.
Measuring the impact of nature-based solutions
Howden’s Risk and Resilience team, Eco-Links Connexus and UC Berkeley CLEE sought to understand how NbS could influence flood risk at a number of sites across the United States. Across many large rivers, reconnected floodplains and levee setback programmes are restoring large areas of floodplain, allowing water to be slowed down to reduce downstream flood peaks and, in some cases, temporarily stored during high-flow events.
To quantify the impact, JBA modelled two scenarios for each site:
- Pre-NbS scenario, representing existing levees and constrained floodplains
- Post-NbS scenario, representing expanded floodplains that provide either additional temporary storage or a reduction of velocity through levee breaches or levee setbacks
Using JBA's hydrodynamic flood modelling engine, JFlow, we simulated 5 m resolution flood hazard across a range of design return periods and compared changes in flood extent, flood depth and resulting losses.
The approach incorporated advanced hydrological methods, including machine-learning median annual maximum flow predictions and adjustments for non-stationarity. Applying the same methodology across all sites allowed changes in risk to be assessed consistently.
Flood hazard to insurance loss
JBA's highly customisable US Flood Model provided the ideal framework to assess how changes in flood hazard translate into financial risk. Unlike traditional catastrophe models, which often rely on fixed hazard datasets and predefined views of flood risk, JBA's flexible approach allows bespoke hazard, exposure and vulnerability information to be seamlessly integrated into the loss modelling process.
For this study, the model combined JBA's high-resolution flood simulations with property-level exposure data, enabling a detailed assessment of how NbS influence risk at individual locations by line of business, property type and value. The model was used to calculate probabilistic damage and loss, outputting location-level Average Annual Loss (AAL), Annual Exceedance Probability (AEP) and Occurrence Exceedance Probability (OEP) metrics.
This model flexibility allowed the project to move beyond a simple comparison of flood maps. The approach meant that we could quantify how changes in flood hazard before and after NbS implementation changes property-level loss, potentially influencing underwriting, pricing and portfolio management.
What did we find?
The implementation of NbS across all sites consistently reduced flood extents and flood depths in urban areas. The expanded or reconnected floodplains stored larger volumes of water during flood events compared with constrained floodplains, reducing the impact on surrounding communities and businesses (Figure 2).
The reduction in hazard meant reduced losses. For one site, AAL was reduced by approximately 45% following floodplain reconnection. Commercial properties primarily located in flat areas immediately adjacent to the river experienced a reduction in loss of around 56%, while residential properties predominantly set further inland saw losses decrease by approximately 35% (Figure 3). These reductions occurred because fewer properties were exposed to damaging flood depths during modelled probabilistic events.
While results varied between locations depending on local hydrology, topography, and method of intervention, the findings demonstrate that NbS can produce measurable reductions in flood losses.
What does this mean for insurers?
Insurance premiums are fundamentally driven by expected loss, together with allowances for uncertainty, expenses and capital requirements. The reduction in loss demonstrated in the previous section leads to potential benefits in risk assessments, including:
- Lower technical premiums
- Improved insurability in previously high-risk areas
- Greater confidence in long-term resilience planning
- Increased opportunities for public and private risk transfer partnerships
Importantly, the reduction in expected loss creates opportunities to support investment in NbS that deliver long-term resilience benefits.
For example:
- Premium reductions could be quantified and partially reinvested into future resilience projects
- Insurers could encourage risk reduction through pricing incentives that recognise the benefits of proven interventions
- Public-private partnerships could use modelled loss reductions to support investment decisions and demonstrate value for money
NbS deliver a wide range of benefits, but their effectiveness depends on the type of solution, where it is implemented and the characteristics of the flood risk being addressed.
JBA's flexible modelling framework helps quantify reductions in flood losses that can support the development of innovative resilience initiatives that help insurers remain financially sustainable, strengthen ecosystems, improve water quality, and reduce flood risk over the long term.
Conclusion
NbS have long been recognised for their environmental and societal benefits. What is now emerging is an understanding of the value they can create within the insurance sector, and the role insurers could play in supporting innovative NbS for long-term flood risk reduction.
Using JBA's robust modelling framework, which combines detailed flood hazard modelling with catastrophe risk analytics, it is possible to translate NbS interventions into measurable changes in loss that underpin underwriting, pricing and risk management decisions.
This allows insurers to move from qualitative discussions about resilience to quantitative assessments of risk reduction. In doing so, it creates new opportunities to help fund interventions that reduce risk for communities, businesses and the insurers themselves.
As pressure grows to improve resilience, reduce losses and adapt to a changing climate, the ability to quantify the insurance benefits of NbS is increasingly important.
How JBA can help you
JBA provides flood hazard data and catastrophe models for every country in the world, helping insurers, reinsurers and brokers understand flood risk at property, portfolio and regional scales.
Our flexible modelling approach allows bespoke scenarios to be tested, enabling organisations to evaluate the potential benefits of resilience measures before decisions are made.
If you would like to understand how a flood mitigation scheme could influence risk and losses within your portfolio, we would be happy to discuss the options with you.