Ecosystem Health and Insurance (2002)

Taking LIFE Insurance Seriously:
A revolutionary role for the global insurance
industry in achieving sustainability

Albrecht G, Rapport DJ. 2002. Taking LIFE insurance seriously: a revolutionary role for the global insurance industry in achieving sustainability. In Healthy Ecosystems Healthy People [conference], Washington, DC. International Society for Ecosystem Health in association with the Center for Applied Biodiversity Science and Conservation International.

Abstract: Taking Life Insurance Seriously
As we near Rio plus 10 (Johannesburg 2002) it is self-evident that the
decade under the influence of the global ethic of sustainable
development has been an abject failure. Hundreds of definitions of
sustainable development have been produced, yet the issue that
sustainability addresses at a fundamental level, the continuity of life,
is at greater risk now than it was in 1992. The Rio process and its
outcome in the form of Agenda 21 have been insufficient to reverse
the well-documented macro trends in the degradation of ecosystem
health. What is blocking all roads to sustainability is not lack of
science, but the lack of political will, and supporting structures and
institutions. This paper recognises the need for a radical change of
course to achieve sustainability, but unlike most current prescriptions,
we argue that just such a revolutionary outcome can be achieved by
insuring ecosystems to assure ecosystem health. We develop a case
for using the institution and practices of insurance (currently itself at
risk of collapse owing to the increasing frequency of environmentally
related catastrophic events) to re-establish ecosystem health and to
provide an economic incentive for safeguarding ecological services
and promoting true sustainability.

The Extent of Ecosystem Degradation
• Extinction of species are orders of magnitude above
expected levels
• the world’s forests have shrunk to a small fraction of
historical levels
• invasive species are commonplace and are one of the
causes of the loss of biodiversity
• desertification is rampant
• coastal communities of most of the world are degrading
owing to habitat loss, nutrient enrichment, and toxic
• grasslands have been turned into deserts
• loss of wetlands has been extensive
Ecosystem Distress Syndrome
The impacts of species loss of ecosystem
health and ecological services are believed
to be potentially severe, with great
uncertainty as to where thresholds of
ecosystem collapse may lie. Ecosystem
pathology, as manifest by signs of
ecosystem breakdown, has become
Human Amplified Natural Disasters
Along with the above trends in decline in ecosystem
health, the global trend towards the increasing
frequency of natural disasters is now well
established and is attributed to a range of
anthropogenic (human/social) factors such as
• increasing population
• the concentration of populations near coastal areas
• the concentration of humans within megacities
• risky design and technologies
• gross pollution
• anthropogenically induced climate change.
Unnatural Natural Disasters
• The frequency of ‘natural disasters’ in the 1980s
was 94% higher than in the 1970s.
• In the year 2000 there were more than 850 natural
catastrophes worldwide which was greater than
1999 (750) and 200 more than the average for the
whole of the 1990s (Munich Re).
• All forms of natural disaster (storms, floods,
droughts) are now occurring with greater intensity
and frequency than what would be predicted by
actuarial analysis of the ‘natural’ disaster patterns
over past reliable records of data.
Costs of Unnatural Natural Disasters
• During the decade of the 1990s natural disasters
caused more than US$600 billion in losses which
was a greater loss than that experienced
cumulatively in the previous four decades
(Abramovitz 2001).
• Indeed there is a corresponding exponential rise in
the cost of insurance payouts due to the frequency
and intensity of natural disasters in the last decade
in the USA (Mileti , Abramovitz 1999)
Damage and Costs
• Steady increase in costs of ‘natural disasters’
• Damage claims from the destruction of
ecosystems are now commonplace (Exxon
Valdez running up a final bill of US$1000
million for damages to the Alaskan coastline)
• the Ok Tedi mine in Papua New Guinea
causing damages to the Fly River with
approximately Aust$500 million paid by the
mine owners to the traditional owners of the
land and the government for reparation.
Health Costs
• In the spring of 2000, for example, over 5 million
people were directly affected by floods in
Mozambique and over 5,000 people lost their lives
to flooding in Asia
• Epidemics of disease specifically linked to climate
change and disruption of ecosystems include
cholera outbreaks in SE Asia and Ebola in Africa
• Epidemics of serious disease that are linked to
ecosystem pollution are also increasing in
frequency and severity in the developed world In
e.g., Australia, Wallis Lakes, (Hepatitis) and
Canada, Walkerton 2000 (E. Coli)
Globalisation of Costs
• No enterprise, no matter where on earth it
pollutes and causes harm to human and
ecosystem health, is immune from
government and class action prosecutions.
• The economic costs of the increasing
frequency and intensity of ‘unnatural
disasters’ must be borne by all players in the
world’s financial systems
The Normalisation of Chaos
A reasonably high degree of regularity and
predictability in the natural systems that we
live in, use and exploit is the foundation of all
forms of human enterprise. This is
fundamentally true: over millions of years,
systems external and internal to the
biosphere have produced the foundations for
life within parameters (boundary conditions)
that provide a degree of stability
The Normalisation of Chaos
Human activities have destabilized ecosystems and
thus pushed natural system regularity into more
unpredictable patterns. Hence we have also
amplified inherent natural uncertainty/ lack of
predictability to unprecedented levels. In
overview, the world of relative predictability, with
respect to reliability of ecosystem functions, has
by degrees been transposed to a world of relative
chaos in which surprise dominates, often with
severe human consequences.
Loss of Ecosystem Health
Pathways and mechanisms leading to
destruction of biocomplexity include;
• overshoot or growth beyond an area’s
carrying capacity
• loss of buffers within systems as critical
thresholds are crossed
• loss of keystone species
• the introduction of substances and events
beyond the evolutionary experience of
systems (PCBs etc)
Loss of Ecosystem Health
Such factors also operate within the ‘laws’ of
complex adaptive systems where large
cascades of change, destructive through all
trophic levels, can occur from what may be
small changes to system parameters. The
destruction of biocomplexity and diversity
leads to the loss of resilience and vitality in
ecosystems. Such a condition can be
diagnosed as one of the indicators for the
loss of ecosystem health
Perception of Risk
• While humans have been quick to recognize and act on the
increased risks to human life, well-being and enterprise
with respect to the terrorism of Sept 11 2001, they have not
acted on the more serious threats to these key areas of
human value posed by ecosystem degradation.
• Ecosystem breakdown has even greater potential
consequences for life, health and economies, however, that
despite the occasional catastrophic event, in general the
impacts of such threats are slow and insidious. Humans
tend to react with rapidity to more immediate and
spectacular threats.
Risk Society
“ecological and high tech risks … are no
longer tied to their place of origin – the
industrial plant. By their nature they
endanger all forms of life on this planet.
The normative basis of their calculation –
the concept of accident and insurance … do
not fit the basic dimensions of these modern
threats. Atomic plants, for example, are not
privately insured or insurable …” (Beck
The uninsurable as the non-sustainable
“Risk society negates the principles of rationality. It
has long ago left these behind, because it operates
and balances beyond the insurance limit” (Beck
Given the scope and scale of ecosystem health
breakdown, all of our current ethical, policy, legal
and financial frameworks become inadequate to
solve the problems we face.
If sustainability is linked to the continuity of life then
in a risky, unpredictable world there can be no
adequate conceptualisation of sustainability
Towards an Insurable World
• The breakdown of the ability of ecosystems to
support life must be countered by adaptive human
management that restores the ability of a given
system to self-regulate and manifest ecosystem
• The insurance industry is a global institution
currently at risk from a world heading towards
increasing uncertainty. If human enterprise
becomes so risky of catastrophic failure that
insurance becomes impossible or prohibitively
expensive, then economic activity as we know it
will be Depressed
Insuring Ecosystem Services
• Markets are silent on the value of ecosystem
“services”, but imputations (Costanza et al 1997)
suggest that the value of these services may well
exceed Global Gross National Product.
• these services are increasingly likely to fail, and
that the economic fallout, human and social health
consequences, political instability, etc, will be
conducive (and compelling) to stimulate the
market to move into the area of insuring
Insuring Ecosystem Services
• Insurance is readily applicable (actuarially sound)
to situations in which the loss stems from damage
to ecosystems – whether that loss is manifest as
economic, social, or human health
• insuring for losses ensuing from the demise of
ecosystems (and the loss of their functions) offers
a vehicle to change the chaotic world into one
more manageable – and predictable at global
Legislated Insurance For Ecosystems?
A Conceptual Scheme
Without a compulsory scheme for ecosystem
insurance it can be argued that the whole system
of insurance is at risk from total collapse because
of failure of ecosystem services.
Hence, a compulsory scheme (globalisation!) will revitalise the insurance industry while at the same
time introducing and existing institution into the
new role as the “visible hand” of international,
continental and bioregional environmental
Insurance Premiums as Sustainability

Insurance premiums can be constructed so as to
accurately represent the risks to the wellfunctioning of a system. Thus the insurer be it
private enterprise, government or an international
body would need to establish premiums in the
interest of covering costs and making a profit to
justify the operation that covers the local, regional
and global dimensions of risks.
World Environment Bank
Individuals and corporate entities could pay
LIFE premiums into the WEB according to
EF Analysis with low impact attracting
small premiums and converse. EH
assessment would put a value on the
services provided by nature, and thus enable
a determination of the costs of replacing
those services in damaged ecosystems,
and/or the costs of repair.
Premiums and the Ecological Footprint
• Set premiums in proportion to the ecological
footprint of the enterprise/activity
• higher the risk, higher the premium
• Premiums Funds generated do not go to
government as part of broad taxation/ but go into
a bank fund – which is the source of all claims for
insuring ecosystems and reparations, for all levels
from local, regional, continental to global.
• Govt should be a regulator and guarantor but not
the recipient of the funds generated
• Under this scheme, corporations (and individuals)
would have an individual and collective incentive
to be sensitive to the conditions of ecosystems in
their region, and regulate their activities to
minimise potential damage. As high risk activities
are likely to attract high premiums, these practices
will become most heavily under attack (and are
managed most intensively with the best available
technology and methods).
• Upstream interventions are ultimately the most
effective way to ensure healthy ecosystems. With
compulsory premiums, the emphasis ought to shift
from curative, crisis orientation to preventative
• Thus LIFE becomes the lever to change the
direction of movement (feedback) of the system.
• The WEB of LIFE ensures sustainability through