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Mangroves, coral reefs could cut flood insurance premiums

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(Reuters) — Natural coastal habitats such as mangroves, coral reefs and salt marshes protect communities more effectively against coastal storms than seawalls, and insurers should consider this when pricing flood risk, Lloyd's of London said.

Investment to protect natural habitats also makes sense for insurers, a report written for Lloyd's said on Tuesday, though 30 times more is currently spent around the world on building seawalls than conserving coastal infrastructure.

Insurers have paid out more than $200 billion in claims for damages due to coastal floods in the past 10 years.

But they could reduce the amount they pay in claims and offer lower premiums if they considered the impact of natural infrastructure.

"If you are in a more resilient city, compared to a less resilient one, then those risk levels should be taken into account in pricing," said Trevor Maynard, head of innovation at Lloyd's.

Insurers should invest more in habitat conservation to reduce the risks from coastal floods, said the report by the Center for the Blue Economy, the University of California, Santa Cruz and The Nature Conservancy. "Flood risk reduction should be undertaken before the flood occurs, but we currently spend much more on recovery efforts than on risk reduction."

Coastal wetlands remaining in the northeast of the United States saved more than $625 million in flood damages from Hurricane Sandy, around 1% of the total flood damages from the 2012 hurricane, previous research for Lloyd's has shown.

Public- and private-sector financing to support natural infrastructure is increasing, but "the availability is geographically uneven," the report said.