Reinsurance News

WTW links Ecological forestry to 41% fall in residential insurance premiums

9th August 2021 - Author: Staff Writer

A new study by global conservation organisation The Nature Conservancy and re/insurance broker Willis Towers Watson has found a 41% decrease in residential insurance premiums when ecological forestry is applied to relevant areas.

willis towers watsonBy modelling the impact on insurance of controlled burning and ecological thinning of overgrown forests, researchers at TNC and WTW were able to quantify insurance premium savings.

In turn, it is believed these savings could be used to fund further investments in sustainable forest management.

The report also explores how the insurance savings from ecological forestry could be captured and applied to pay debt service on bonds which would be issued to pay for ecological forest treatment.

In this way, the insurance savings can contribute to funding or financing the ecological forest treatment, creating a “virtuous circle”.

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For the first time, the project tested parametric insurance as applied to the intensity and acreage of wildfires, resulting in a reduction in both losses and premiums.

Such a parametric product, which can provide instant access to funds to pay for costs not covered by indemnity insurance, would be new to the market and is an innovative way for insurers to cover fire risk.

The project used an ecological forest restoration project in the watershed of Placer County Water Agency in the Tahoe National Forest in northern California.

The researchers found that ecological forestry in the watershed reduced the risk of wildfire substantially for the 81,000 homes in and around the watershed, which in turn could reduce aggregate home insurance premiums $21 million a year

“For the first time we are demonstrating that insurance modelling and pricing can account for the severe wildfire risk reduction benefit of ecological forest treatment,” said Dave Jones, Senior Director of Environmental Risk at The Nature Conservancy and former California Insurance Commissioner.

“These widely-supported forest treatment practices – prescribed burns and ecological thinning – provide the triple benefit of improving forest health, decreasing the risk of catastrophic wildfires, and providing a pathway to keep insurance available.

“Insurers’ models do not currently take into account forest treatment, but now that we have shown it can be done, we expect insurers will begin doing so.”

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