Insurance products are financial tools that are used to manage risks for governments, companies, households and individuals. The Association of British Insurers describes insurance as the following, “Insurance is a financial product sold by insurance companies to safeguard you and/or your property against the risk of loss, damage or theft (such as flooding, burglary, or an accident). The company pools clients' risks to make payments more affordable for the insured, with each member paying regular premiums to the insurer. If a customer, or a holder of an insurance product, makes a claim for lost, damaged or stolen goods, the insurer will pay out for that loss that is covered under the specific policy” (ABI, accessed December 18th, 2019). Insurance for conservation has many possible benefits that can be divided into two large categories: 1) insurance on environmental damages caused by natural or human activity and 2) aligning incentives through reduced insurance premiums based on investing in or maintaining natural infrastructure that decreases risks of losses. The former has been implemented in Quintana Roo, Mexico, for reef restoration following storm damage, and the latter has a good example in South Africa for decreases in home insurance premiums following the eradication of invasive alien plants that pose elevated fire hazards. Forest carbon projects are also known to purchase insurance to mitigate against forest fires and insect damage risk.
Disaster Risk Insurance
Insurance schemes that cover– against a premium– financial losses due to extreme weather and natural disasters (i.e. such as earthquakes, floods). If the event occurs, the insurer refunds a percentage of the loss. Insurance is widely used to increase households' and enterprises' resilience to shocks. Forests and other natural assets can be insured.
Green Measures to Reduce Insurance Premiums
Companies operating in fishing and other economic sectors with risk of high impact on natural assets need to insure their operations to better manage commercial risks. The insurance companies can offer those enterprises discounts on premiums if they adopt green measures that both contribute to mitigating the risks incurred by the insurers and produce environmental benefits. These green measures can effectively realign company investment to more sustainable practices. Another example is discounts on fire insurance premiums in South Africa for private land owners who remove high fire risk invasive species from their land.
EIA Performance Bonds
A performance (or contract bond) is a surety bond issued by an insurance or financial company to guarantee satisfactory completion of a project by a contractor. Performance bonds and other financial guarantees can be linked to EIA provisions. These are provided by the project developer -usually for long term mining projects- to assure stakeholders that financial resources can be deployed even if the developer cannot comply with EIA provisions. It is a promise from a surety that monetary compensation will be provided to the owner if the project developer fails to act. The resources from the surety can be quickly deployed to save or recover critical environmental assets and can be accessed even in case of bankruptcy.
Environmental Risk Insurance
Insurance schemes that cover against environmental liabilities (i.e. the financial risk associated with environmental pollution and contamination) in exchange for a premium. In addition to preventing future expenditures and thus reducing business risks, they can provide contingent resources for immediate remedial action in the event of an environmental disaster.