12 March 2026
Biodiversity Insurance A Growing Ecosystem
“The same way biodiversity is important to biological ecosystems, business diversity is important to economic ecosystems. It's good to have an abundance of various kinds of businesses. This cultivates resilience in the system.” Hendrith Vanlon Smith Jr, CEO of Mayflower-Plymouth
Introduction
Biodiversity is a broad, multifaceted topic which impacts society in a wide variety of ways. Over the years, the subject has remained firmly on the political radar, driven by general growing awareness of its importance, rather than nature being regarded as an unlimited resource.
Studies have shown that decline in biodiversity impacts the resilience of the services which underpin human and economic development. The economic impact of biodiversity includes an estimated USD44 trillion of value generation, which is consequently dependent on nature and impacted by its loss.
As emissions continue to increase, the earth’s largest carbon sinks - forests, soil and oceans are becoming less effective at absorbing carbon. As a result, an estimated 100-300 million people are at increased risk of floods and hurricanes due to coastal habitat loss. This has a huge impact on human life, business and economic systems across many sectors, underscoring the importance of climate resilience.
Biodiversity is key to our food and drug supply. More than three-quarters of the world’s food crops rely at least partially on pollination by insects and other animals, while nature inspires or forms the basis for 70% of cancer drugs.
Unfortunately, concerns about biodiversity are increasing. Rapid human population growth and human activity have contributed to the significant alteration of approximately 75% of land-based environments and 66% of marine environments.
It is globally recognised that biodiversity loss can constitute a risk to economic activities and financial assets, that may arise from modest tipping points and reverberate through entire sectors and financial systems. The challenge is how to minimise these risks, which is where insurance becomes an important asset.
Environmental Insurance
Traditionally, Environmental Impairment Liability (EIL) policies are the type of policy that most companies, funders, advisors and other organisations will be familiar with. EIL policies have been available for over 25 years in the UK, but they were originally focussed on covering pollution and contamination events, and the resulting loss and damage, rather than the protection of biodiversity. Over the years, EU/UK policies have expanded cover for biodiversity damage for land and water protected species, or natural habitats under the European Union Environmental Liability Directive 2004/35/EC and latterly local legislation but the cover is part of a wider policy.
Policies specifically designed for Biodiversity risks, from the concept stage to delivery for a wider marketplace, have only recently emerged. This reflects a significant amount of capital being invested into biodiversity projects and a desire to protect this investment.
Biodiversity and how Insurance can Support and Reduce Risks
Insurance has a role in supporting the protection of biodiversity such as habitat pollution, habitat destruction, invasive species, climate change and in the protection of companies, government, funders, investors and humankind.
Launched by the United Nations Development Programme (UNDP), The Biodiversity Finance Initiative (BIOFIN) is a global initiative designed to address the significant challenge of financing biodiversity conservation, which is now being implemented across 133 countries. BIOFIN provides technical support to countries to develop and implement comprehensive strategies for biodiversity finance.
BIOFIN’s recently released report - How Insurance Can Address Nature-related Risks: A Summary Guide, provides a useful summary of how insurance can play a crucial role in biodiversity conservation by providing financial protection against risks to natural assets, incentivising sustainable practices, and securing key investments.
Biodiversity insurance is wide-ranging, with examples including forestry insurance, parametric mangrove ecosystem insurance, coral reef insurance, and wetland ecosystem insurance. National wildlife conservation programs also utilise insurance to cover their unique operations. Further, parametric insurance is increasingly being looked at for complex large scale issues including climate change, crops and flooding.
Biodiversity Insurance Products
The UK has witnessed a number of relatively recent significant developments in the biodiversity insurance sector with the recent development of two key products.
One product is an insurance policy that can cover natural restoration and conservation insurance risks and is designed by innovative London based underwriters. The policy can be used to support significant restoration and conservation projects on a global basis.
The natural restoration and conservation insurance is designed to bridge the ‘gap’ and give security to finance ecological restoration projects.
Natural restoration and conservation insurance protects the financial costs associated with creating the restoration conditions required to return an ecosystem to its planned (or a revised) recovery trajectory, if the original recovery trajectory of the integrity level of an ecosystem is adversely impacted following a pre-defined insured peril.
Insured Perils include:
- Aircraft
- Cold Wave
- Cyclone
- Earthquake
- Explosion
- Fire
- Flood
- Hail Damage
- Heat Wave
- Impact
- Landslide
- Lack of Precipitation
- Lightning
- Malicious Damage
- Rockslide
- Storm
- Typhoon
The policy is suitable for UK and other global natural restoration and conservation projects; however, it does not extend to cover possible associated financial losses such as crop loss or supply contract at this stage. Though, cover is likely to evolve as market interest and demand increase.
Potential clients for this product include financiers, individuals benefiting from the ecosystem, governments, states, authorities, corporates, and those undertaking the works such as restoration companies and contractors.
Another London based insurer has developed an insurance product that specifically deals with Biodiversity Net Gain (BNG) risks. BNG is a policy that specifically applies in England, which requires that all new developments achieve a measurable increase of at least 10% in biodiversity when compared to pre-development sites. BNG was included in the 2021 Environment Act with the regulations coming into force February 2024.
BNG and Nutrient Neutrality requirements are placing long term site obligations and liabilities on property developers, owners and investors to support and maintain habitats they have created or enhanced.
The policy that can cover BNG risks is ideally used when owners of commercial assets are preparing to finance or refinance them. It allows housing developers to have confidence when they are seeking a clean exit from a site, or for lenders who have concerns regarding the environmental credentials of an asset and future asset values.
It provides an insurance policy assuring the BNG performance obligations of an asset over a sustained, 10-year period for risks. Risks can range from unknown future impacts on the habitat, to costs for the complete or partial restoration of habitat. Cover includes lenders’ exposure and loss of biodiversity unit income (habitat banks), therefore improving the certainty of returns from investing in habitat banks.
Conclusion
Biodiversity is a key asset to services, and substantial funding is now being invested into a wide range of global projects from conservation and biodiversity creation, through to crop management, renewable energy sources, carbon sinks and more.
In the financial biosphere, the insurance sector has lagged behind the fast-moving financial sector in the past. However, we are now seeing increased activity with the development of new insurance products and growing connections between biodiversity finance, insurance and the natural environment.
Let's talk
Mathew Hussey
Partner, Gallagher Specialty.
E: mathew_hussey@ajg.com
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