In an interview with Reinsurance News, Harmender Singh Kalirai, Chief Transaction Officer at SCOR P&C, discussed SCOR’s new Ecological Restoration Insurance Solution and how it aims to bridge the gap between the need and the desire to finance ecological restoration projects by de-risking the opportunity to attract greater investment.
Harmender explained that healthy ecosystems are essential for maintaining the planet’s biodiversity and the natural capital that supports human life and well-being. However, many ecosystems are declining, and some are at risk of collapse, negatively impacting public health, societies, economies, and investments.
Harmender said, “Although there’s a greater awareness that this is happening and of the importance of having healthy ecosystems, there can be a level of reluctance to finance ecological restoration projects.
“The latest figure we’ve seen from scientists is that around $700 billion is needed annually to sustainably manage biodiversity. At COP15 and again at COP16, countries agreed to mobilise $200 billion a year, and it seems we’re well short of that figure. So, we wanted to see if we could come up with an innovative solution to this concern in order to address this global issue.”
To tackle this issue, SCOR has developed its Ecological Restoration Insurance Solution (which forms part of its NatReCo Initiative) with Restore as its initial product.
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Harmender explained that the Restore product “focuses on what we believe is the highest risk phase of an Ecological Restoration Project, which is the implementation phase of the conditions. This is where you are spending your investment to implement the conditions for recovery – the integrity level of the project ecosystem is at its lowest and therefore the vulnerability level is at its highest.”
He clarified the difficulty of ensuring—and therefore insuring—the outcome of ecological restoration projects, because of the inherently unpredictable and dynamic nature of ecosystems and the drivers that impact them.
“To insure the outcome is very challenging, because it’s not the project that recovers an ecosystem, its nature; the project puts in place the conditions that help an ecosystem recover. What we wanted to achieve was to assist the recovery of that ecosystem by protecting the project that implements the recovery conditions. So, if there is an insured event and it adversely affects the project, by insuring the financial cost to get that project back on track, we are giving the project a greater prospect of success, and therefore a greater prospect of the outcome being achieved,” said Harmender.
Harmender highlighted the key benefit Restore offers: “If an event happens and it’s insured, you can then lean on the insurance to help you get back on track, rather than trying to find that investment from somewhere else, whether that be private or public investment, which is obviously very challenging because often you have a limited pot of funds to deploy into a project.”
He also emphasised the need for the solution to be scalable. He acknowledged that there are various reasons why someone might undertake an ecological restoration project, and such projects are ongoing all around the world. Therefore, the product cannot only be bespoke to specific clients’ needs; it needs to be a scalable, global solution.
Harmender continued, “Another element is we wanted this solution to be impact assessment based and not parametric. SCOR writes parametric business, and we know it can be extremely valuable, but for the purposes of ecological restoration, we felt an impact assessment based solution was better suited.”
He stressed that ecosystems don’t respond to events like fires or floods in binary ways because of their biological elasticity — the impact of such events are not always negative, it can sometimes be neutral or even beneficial to recovery. Therefore, a parametric solution “wouldn’t always work.” Instead, SCOR’s approach relies on expert-led impact assessments to determine how an event affects the restoration project.
When asked how SCOR determines which restoration projects are eligible for coverage under this solution, Harmender said, “We’ve developed a specific underwriting onboarding process for the Ecological Restoration Insurance Solution, and as part of that, there is one element that we describe as the ecological restoration due diligence process.
“Within that process, in collaboration with the Society for Ecological Restoration (SER), we have developed our own standards-based approach for assessing the quality of an ecological restoration project because we want to only insure projects that advance ecological restoration. This approach is based around the six components of ecological restoration.
“We have drafted a document which sets out certain critical and optional criteria which we believe to be relevant to an ecological restoration project. We then gather information about the project from the prospective insured and give that information to SER and a certified ecological restoration practitioner who is an expert in ecological restoration so that they can review that information against our standards – they will verify the project against our standards, and they will rate the quality of that project.”
He explained that projects will receive a grade between ‘C’ and ‘AAA’. To be eligible for insurance from SCOR, a project must receive a final grade of at least an ‘A’, meaning it has met all critical criteria. However, he noted that the conversation is a very open dialogue—meaning initially a provisional grade will be issued with recommendations on how the project can be improved.
“If the prospective insured is happy to take on board the recommendations for improvement, we will then reassess the provisional grade for the project to determine the final grade, which allows us to decide if it’s a grade ‘A’ or not,” said Harmender. “There is also ‘AA’ and ‘AAA’. If you get that, it means your project is of a higher quality, and therefore we think you should be rewarded. That means you get a discount on your premium if you are ‘AA’, and a bigger discount if you’re ‘AAA’.”
Harmender added, “We believe that knowing that a project has been graded either ‘A’ or above will also provide greater confidence in the quality of the project for investors.”
Harmender explained that SCOR wanted ecological restoration to be at the heart of the Restore product and the wider Ecological Restoration Insurance Solution.
“That’s why some or all of the claim money that you receive has to be reinvested into ecological restoration – that’s a condition you sign up to in your policy wording. We really wanted to make sure that once an event occurs, if it’s a valid claim, and you get the claim payment, those monies are reinvested in ecological restoration,” he said.
Ultimately, beyond the project itself, Harmender believes that by encouraging more investment into ecological restoration projects, this solution will help preserve nature and biodiversity.
“We hope that we can optimise the impact that SCOR as a company, as a global reinsurer, is having on nature and people by contributing to the welfare, resilience and sustainable development of society,” Harmender stated.
Additionally, Harmender revealed that the Restore product is the first within the Ecological Restoration Insurance Solution. The “Manage” product, which focuses more on the ongoing management elements of a restoration project, will go live later this month. The third product, “Conserve,” will focus on maintaining the integrity of a project once it has reached its desired level—and SCOR aims to launch it later this year.
He explained, “These are the first three products of the ecological restoration insurance solution but we are also considering related risks around ecological restoration and the potential to develop more products with them. Under the banner of the NatReCo Initiative, the idea is to then have multiple solutions as well that sit alongside the ecological restoration solution focusing on other forms of nature-based restoration.”
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