The coronavirus pandemic has shown just how easily and unexpectedly zoonotic diseases can spread—and ecosystem degradation may be a driving force. To save disappearing habitats, RFF University Fellow Carolyn Kousky offers a novel solution: create insurance policies for nature itself.
As the coronavirus pandemic threatens public health and pummels the global economy, the world confronts a related—and similarly destructive—crisis.
The natural world is deteriorating at an unprecedented rate, according to a series of recent reports from the United Nations’ Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES). Human activity, pollution, and climate change have caused much of the damage, in part because of misaligned economic incentives, which have “favored expanding economic activity, and often environmental harm, over conservation,” according to the IPBES. In other words, the rapid degradation of nature is merely a symptom of a larger illness: a global economy that undervalues the ecosystem services that the natural world provides.
Carolyn Kousky, a university fellow at Resources for the Future, puts it like this: “Ecosystems are public goods, and public goods are underprovided in the market. These are classic market failure problems.”
The two crises—one involving the health of ecosystems, and the other involving the health of humans—might seem independent. But evidence increasingly suggests that habitat loss is a key driver of the spread of animal-borne illnesses like COVID-19. That’s why some experts at IPBES are sounding the alarm that “future pandemics are likely to happen more frequently, spread more rapidly, [and] have greater economic impact” if little is done to “incentivize behavior change on the frontlines of pandemic risk.”
Kousky, who serves as the executive director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania, closely studies strategies for funding conservation. A Duke Law Journal paper Kousky coauthored last year with Wharton Professor Sarah E. Light was not originally conceived with a pandemic in mind, yet their research offers lessons for policymakers who might feel a renewed passion for protecting ecosystems—lest more zoonotic diseases spread. In assessing how insurance regimes can help restore ecosystems, Kousky and Light say that their article “turns climate governance literature on its head” by exploring contexts in which nature itself can be insured directly.
Habitat Destruction and Human Health
Why is habitat loss associated with the spread of zoonotic diseases? The answer is simple: when non-human animals come into closer contact with people, the risk of a pathogen jumping from one species to another increases.
As human populations grow, they expand into regions formerly dominated by natural ecosystems, which pushes other species to increasingly small and dense areas, ever closer to humans. A disease can then infect people if a sick organism contaminates a local water source, or if a human consumes the meat of a sick animal. Humans have a hand in habitat loss in indirect ways, too—principally by contributing to climate change. Extreme storms can destroy habitats, and changes in local temperature and precipitation can prompt organisms to migrate elsewhere.
The public health consequences of habitat loss are already observable across the globe. Expanding suburbs in the forested American northeast brought humans in closer contact with ticks, which has spread illnesses like Lyme disease. Ebola outbreaks are more common in deforested areas of Africa, according to one 2017 study. Plus, the spread of coronavirus—likely transmitted from bats to pangolins to humans—is already being connected to habitat loss.
The coronavirus pandemic might seem like a historic anomaly—a once-in-a-century event akin to the 1918 flu. But climate change will only further degrade ecosystems, increasing the likelihood of major zoonotic disease events. Reducing emissions will help mitigate the worst impacts of climate change, but temperatures are already rising—other policy interventions to reshape economic incentives and protect nature are necessary, too.
Insurance Policies in the Wild
Some of the most common mechanisms for managing nature are bans on certain actions in protected ecosystems, or permit systems to regulate behavior. But these prevailing systems offer minimal protection when no one owns the land and no one can be held responsible for damages. As Kousky and Light emphasize in their paper: “A catastrophic weather event … will not seek a permit from regulators before destroying a coral reef.”
“For a long time, the conservation world has been trying to figure out how to mobilize more resources for conservation and restoration,” Kousky notes. “They say things like: ‘The insurance sector is out there. Is this something that could be harnessed?’”
For certain ecosystems—say, a large forest that nearby property owners would want to restore in the event of a wildfire—an insurance regime could prompt lasting environmental and economic benefits. Insurance could help guarantee that necessary funds are quickly available when disaster strikes, facilitate cooperation among parties who would otherwise be unwilling to fund restoration efforts on their own, and allow for international cooperation to protect ecosystems that cross political boundaries.
Not all natural resources are directly insurable, however. First, some entity must have the financial ability to purchase insurance and an interest in paying to protect land they do not own. The habitat in question must also be recoverable after damage, and must face random threats—for example, the possibility of an unusually extreme storm—rather than an inevitable outcome, such as incremental sea level rise.
While their idea is largely novel, Kousky and Light point to one prominent real-world example: an insurance arrangement that protects coral reefs along a hundred miles of the Mexican coastline. Using both Mexican tax dollars and private funds, the Coastal Zone Management Trust—a partnership that involves the state government of Quintana Roo, local hotel associations, and the environmental nonprofit the Nature Conservancy—has purchased an insurance policy that provides money to restore coral reefs ravaged by storms.
Despite all the involved stakeholders having an interest in preserving nature, none actually own the coral reef. Without the trust in place to enable their cooperation, the area might have otherwise exemplified the tragedy of the commons. Traditional arrangements would do little to restore the reef after a disaster.
“If hotel owners adjacent to a coral reef simply purchase property insurance to protect against flood damage, they will reap a benefit in the event of a storm,” Light says. “But that money is likely to fund property renovations—not restoration of the ecosystem itself.”
Other programs are currently operational in small areas or theoretically feasible, but have yet to be leveraged on a large scale. Some private forests have insurance to cover the value of lost timber after extreme weather or wildfires, and similar policies could be taken out to protect public lands, as well. Likewise, public earthquake insurance policies in California do not provide funds for restoring land damaged by sinkholes, land fissures, or erosion—but New Zealand’s public program, which covers a broader range of potential damages, shows that such insurance policies can succeed with a wider scope.
Where insuring nature itself is not possible, working to “better link the protective services of ecosystems to standard property insurance” can confer similar benefits, Kousky says. She points to other programs that incentivize the restoration of nature as potentially more feasible on a wider scale than insurance might be. Kousky highlights the United Services Automobile Association’s Firewise USA program and the National Flood Insurance Program’s Community Rating System, both of which offer discounts to policyholders who live in communities that make efforts to reduce fire and flood risks, respectively.
The Future of Nature-Based Insurance Solutions
The insurance purchased by the Coastal Zone Management Trust, while easier to spearhead in a community dependent on tourism, has inspired similar strategies for protecting ecosystems elsewhere. Last year, the Nature Conservancy announced plans to expand its idea to natural areas along the coasts of Hawaii and Florida, and Bank of America offered its support by contributing $1 million. Following these successes, California passed a law in 2018 that requires the state insurance commissioner to “identify, assess, and recommend risk transfer market mechanisms that promote investment in natural infrastructure.” Kousky is now a member of the California Climate Insurance Working Group, a state government group formed in the wake of that law.
For its part, IPBES is planning subsequent reports that relate biodiversity concerns to the current pandemic, while the Intergovernmental Panel on Climate Change is preparing an assessment of the human role in destroying the natural world and promoting pandemics. Such international guidance will be important, not just as nations continue grappling with COVID-19, but in the coming years, as the spread of zoonotic diseases is expected to increase.
That’s why innovating novel mechanisms for protecting and restoring nature will be so important: policies that incentivize the protection of fragile habitats come with corollary benefits, like limiting the proliferation of zoonotic diseases. Still, Kousky emphasizes that insuring nature is hardly a panacea for the world’s interrelated environmental challenges. “It’s more a way to spread and manage losses over time, than some sort of magic money,” Kousky says. “There are times when it’s going to be helpful, and times when it really doesn’t make sense.”
But therein lies a lesson: even when insurance is not the ideal conservation method, the ability of insurance regimes to protect ecosystems in certain contexts can guide policymakers as they devise other remedies. Whatever the mechanism for protecting and restoring nature, financial incentives help; setting aside money in advance to fund eventual restoration efforts helps; systems that facilitate cooperation between disparate parties help. And for policymakers working to address this pandemic and prevent future outbreaks, a key takeaway is clear: protecting the natural world will definitely help, too.