---
title: the quote beside the cost of doing nothing
canonical_url: https://ensurance.app/guide/the-quote-beside-the-cost-of-doing-nothing
markdown_url: https://ensurance.app/guide/the-quote-beside-the-cost-of-doing-nothing.md
subtitle: "the cost of inaction in present value, the premium ceiling it sets, and the ensurance quote paths beside it on the same clock"
category: nature-finance
---

# the quote beside the cost of doing nothing

*the cost of inaction in present value, the premium ceiling it sets, and the ensurance quote paths beside it on the same clock*

The forest above a town's water intake does its work in every quiet year. It can hold the soil on the slope and keep sediment out of the river the treatment plant was sized for. When that forest burns hot or the slope lets go, the bills change: more chemical and dredging for the utility, debris for the road crew, rebuilding for the city. That bill is the cost of doing nothing, and it is the number any quote for keeping the forest has to sit beside.

**What is the cost of inaction?** The cost of inaction is the present value of what a payor will spend or lose if nothing is done: the expected losses each year without the intervention, over a stated term, discounted at a stated rate, each loss counted once. It is a model output, not an invoice, and it is specific to one payor.

This post is the arithmetic, ending with the ensurance quote beside the cost of inaction on the same clock. Ensurance is how the people a forest protects can pay to keep it. It is not the forest, and it is not insurance.

:::johnson
**a quote means nothing until it sits next to the bill it is meant to be weighed against.** Put both in present value, at your own rate, over the same years, and the comparison becomes a decision.

[See which invoice counts first →](/guide/an-avoided-cost-is-the-benefit-you-can-book?from=guide)
:::

*This post explains a method. It is not insurance, legal or tax advice.*

## what is the cost of inaction, line by line

The cost of inaction starts with **expected annual loss** (EAL): how often a loss happens times what it costs, averaged over a year. You need two: the payor's EAL if nothing is done, and its EAL with the intervention in place plus what the intervention still costs to keep up. The difference is the **net avoided loss**, the payor's saving each year.

That saving lands on four bills: avoided capital spend, avoided operating cost, protected earnings and kept insurability. Which invoice counts is tested in [an avoided cost is the benefit you can book](/guide/an-avoided-cost-is-the-benefit-you-can-book?from=guide). This post asks what the annual figure is worth.

## from expected annual loss to a present value

A dollar avoided in year ten is worth less today than one avoided this year, so the annual saving is discounted over the term.

| step | formula | what it answers |
|---|---|---|
| **Net avoided loss** | EAL without − EAL with − continuing cost | What the payor saves in a year |
| **Annuity factor** | AF(r, N) = (1 − (1 + r)^−N) ÷ r | What $1 a year for N years is worth today at rate r |
| **Present value (PV)** | Net avoided loss × AF(r, N) | What the whole term of savings is worth today |
| **Net present value (NPV)** | PV − upfront cost | Whether the payor comes out ahead |
| **Benefit-cost ratio (BCR)** | PV ÷ upfront cost | Dollars of benefit per dollar spent |
| **Break-even** | Upfront cost ÷ AF(r, N) | The smallest annual saving that pays the cost back |

The term is the horizon a payor already plans on, often 10 to 35 years for utility master plans and infrastructure concessions. The rate is the payor's own: a utility's allowed return, a corporate hurdle rate, or a lower public rate for a city.

## the worked example

An illustration, not a quote for any parcel, not a quote for any parcel. A payor spends **$2,000,000 up front** on protective work. The work saves **$400,000 a year** in expected losses, net of continuing costs, for **ten years**, with savings counted at each year-end, a **5% discount rate**, and no value left over at the end.

| measure | formula | result |
|---|---|---:|
| Undiscounted savings | $400,000 × 10 | $4,000,000 |
| Annuity factor | AF(5%, 10) | 7.7217 |
| Present value of savings | $400,000 × 7.7217 | $3,088,694 |
| Net present value | $3,088,694 − $2,000,000 | +$1,088,694 |
| Benefit-cost ratio | $3,088,694 ÷ $2,000,000 | 1.54 |
| Break-even annual saving | $2,000,000 ÷ 7.7217 | About $259,009 |

The $4,000,000 is the number people quote, and the wrong one to compare. Discounted, the savings are worth $1.54 per $1 at 5%, and the work still pays above about $259,000 a year.

The hard question is what supports the $400,000. A high ecosystem value, a big exposed asset or one expensive past storm does not by itself establish the avoided loss. The figure needs a hazard model run with and without the work, the payor's own bills, and a stated range. The Federal Emergency Management Agency (FEMA) benefit-cost method is a conventional reference for comparing mitigation cost with expected benefits.

## the premium ceiling

The present value of a payor's own avoided loss is the most it can rationally pay to keep the asset that avoids it. In the example, about $3.09 million over ten years. Pay less, in present value, and the payor is ahead. Pay more, and doing nothing was cheaper.

Three rules keep the ceiling honest: count only costs the payor has scoped, budgeted or published; take a haircut for uncertainty; and count each loss once: an insurer's payout and the repair it pays for are one loss, not two, and gross sales lost are not net loss.

## the ensurance quote beside it

In the draft model, an ensurance quote is built to be priced from the one-time cost of bringing a natural asset into protection, written **C**. Cost-side capital is built to front that cost; beneficiaries are meant to repay the cost of protecting it along a path built to end with the asset entrusted. The formulas are from our premium model, a **draft model that is not yet approved**. The parcel is invented.

**Draft model, illustrative.** C = $300,000. Baseline yield r_b = 5%. Target yield r = 8%. Terms N = 5, 15 and 25 years.

| path | formula | annual payment | years | total paid |
|---|---|---:|---:|---:|
| **ENSURED** | C × r_b | $15,000 | Every year it is paid | $375,000 over 25 years, and it keeps going |
| **ENTRUST, 5 years** | C ÷ AF(8%, 5) = $300,000 ÷ 3.9927 | $75,137 | 5 | $375,685 |
| **ENTRUST, 15 years** | C ÷ AF(8%, 15) = $300,000 ÷ 8.5595 | $35,049 | 15 | $525,733 |
| **ENTRUST, 25 years** | C ÷ AF(8%, 25) = $300,000 ÷ 10.6748 | $28,104 | 25 | $702,591 |
| **ENTRUST, T-Zero** | C × (1 + r) | $324,000 once | Now | $324,000 |

Totals are not the comparison. Present values are. At the model's own 8%, each of the three term paths is worth exactly $300,000 today, because each is priced to return C at that rate. T-Zero is the exception: $324,000 paid now is C plus one year at 8%, so it is worth $324,000. The three term paths differ in timing, not in value.

A payor discounts at its own rate, though. Say a city with a 5% rate. Its net avoided loss from this parcel, with a model and its own bills behind the figure, is **$40,000 a year** over a 25-year horizon. Its cost of inaction is $40,000 × AF(5%, 25) = $40,000 × 14.0939 = **$563,758**. That is its ceiling.

| path, valued by the city at 5% | PV of payments | below the $563,758 ceiling by |
|---|---:|---:|
| **ENTRUST, T-Zero**, paid now | $324,000 | $239,758 |
| **ENTRUST, 5 years** | $75,137 × 4.3295 = $325,304 | $238,454 |
| **ENTRUST, 15 years** | $35,049 × 10.3797 = $363,795 | $199,963 |
| **ENTRUST, 25 years** | $28,104 × 14.0939 = $396,091 | $167,667 |
| **ENSURED**, first 25 years | $15,000 × 14.0939 = $211,409 | $352,349, but the asset is still not entrusted |

Every path sits below the ceiling, so on these assumptions the city is ahead either way. In this draft illustrative model, a payor that discounts below the model's 8% values the shorter path at less present value, because its payments finish sooner. A payor discounting above 8% would see the reverse. This is a property of the example, not advice on which path to take. ENSURED looks cheapest over 25 years only because it never finishes: at 5%, $15,000 forever is worth $300,000 today (the city's 5% happens to equal the model's baseline yield), the same as C, and the asset is never entrusted.

The annual view needs the same care. On the 25-year path the city pays $28,104 a year against $40,000 a year avoided. On the 5-year path it pays $75,137 a year, more than it avoids in each of those years; that path sits under the ceiling only in present value, because the payments stop after five years while the avoided loss runs on. Never set an annual payment against a $563,758 present value.

One payor keeps the arithmetic plain. In practice the forest can lower the utility's, the road's and the carrier's loss too, and each can pay its share against its own avoided loss: [split the bill for what lowers it](/guide/split-the-bill-for-what-lowers-it?from=guide). The people the forest protects are its [serviceshed](/guide/what-is-a-serviceshed?from=guide).

## what the asset owes at the end: nothing

The quote borrows the shape of a lease-versus-buy decision, with the outcome inverted. A lease ends with the asset still let; a mortgage leaves a lien until paid. An ENTRUST path is built to end with the asset entrusted: permanent commons, with no lien, no debt and no rent on it. The payments are not a loan on the land. They repay the cost of protecting it, and the forest owes nothing.

## what the field has shown mitigation can pay

No ensurance saving has been realized yet. These figures are the field's, and most are societal benefit, not a premium saving.

| study | finding | what it measures |
|---|---|---|
| **National Institute of Building Sciences (NIBS), 2019** | $6 saved per $1 of federal mitigation grants; $11 per $1 for adopting current building codes | Societal benefit, including lives and business interruption |
| **NIBS, 2019** | $2 per $1 for retrofitting wildland-urban interface buildings, the lowest ratio in the study | The hardest case for home retrofit |
| **Reguero et al., 2018** | Gulf Coast nature-based adaptation, average BCR above 3.5; some marsh and oyster reef cases above 7 | Modeled avoided damage against cost |
| **UC Davis, fuel treatment study, as reported (publication date to be confirmed)** | About $2.8 billion in damage avoided across about 300 fires, roughly $3.75 per $1 | Estimated damage avoided on fires from 2017 to 2023 |
| **Charlotte-Mecklenburg buyouts** | $90.5 million invested since 1999; more than $50 million in losses avoided to date | Self-reported; the case rests on future losses |

Read these as evidence that mitigation can pay, not that a given payor's bill will fall. A BCR counts everyone's benefit; a payor's ceiling counts only its own. Charlotte shows why the term matters: avoided losses to date are below the money spent, and the case rests on the losses still ahead.

## frequently asked questions

### what is the cost of inaction?

The present value of what a payor will spend or lose if nothing is done: its expected annual losses without the intervention, discounted over a stated term at a stated rate, with each loss counted once.

### how do you calculate a benefit-cost ratio?

Divide the present value of the net savings by the upfront cost. In the example above, $3,088,694 ÷ $2,000,000 = 1.54.

### what discount rate should we use?

Your own, on both columns: the cost of inaction and the quote.

### is the ensurance quote a loan on the land?

No. It is meant to repay the cost of protecting the asset, and the asset is meant to end entrusted, with no lien, debt or rent on it.

### has ensurance saved anyone money yet?

Not yet. The figures here are illustrations or the field's published results.

## next step

[Talk to someone who can run the numbers with you →](/contact?from=guide&topic=lower-the-loss) Or see how this applies to [cities and counties](/solutions/governments?from=guide&topic=lower-the-loss), [utilities](/solutions/utilities?from=guide&topic=lower-the-loss) and [corporations](/solutions/corporations?from=guide&topic=lower-the-loss). For what ensurance does not do, read [what ensurance cannot do](/guide/what-ensurance-cannot-do?from=guide).

## sources

[National Institute of Building Sciences, Natural Hazard Mitigation Saves, 2019 report](https://nibs.org/wp-content/uploads/2025/04/mitigationsaves2019_complete.pdf) — Full report on mitigation benefit-cost ratios by measure and hazard

[NIBS, federal grants fact sheet, 2019](https://nibs.org/wp-content/uploads/2025/04/ms_v3_federalgrants.pdf) — $6 saved per $1 of federal mitigation grants, counted as societal benefit

[International Code Council, on the NIBS study, 2019](https://www.iccsafe.org/about/periodicals-and-newsroom/new-national-institute-of-building-sciences-study-on-mitigation-finds-that-modern-regularly-updated-building-codes-save-lives-and-protect-property/) — $11 saved per $1 for adopting current building codes

[NIBS, wildland-urban interface retrofit fact sheet, 2019](https://nibs.org/wp-content/uploads/2025/04/ms_v3_retrofit_wui.pdf) — $2 saved per $1, the lowest ratio in the study

[Reguero et al., PLOS ONE, 2018](https://doi.org/10.1371/journal.pone.0192132) — Gulf Coast nature-based adaptation, average benefit-cost ratio above 3.5, some marsh and oyster reef cases above 7

[UC Davis, forest fuel treatments and wildfire damage](https://www.ucdavis.edu/climate/news/forest-fuel-treatments-reduce-wildfire-spread-prevent-28-billion-damage) — About $2.8 billion in damage avoided across about 300 fires in 11 states, 2017 to 2023

[Mecklenburg County Storm Water Services, floodplain buyout program](https://stormwaterservices.mecknc.gov/floodplain-buyout-program) — $90.5 million invested since 1999 and more than $50 million in losses avoided to date, as reported by the county

[FEMA, benefit-cost analysis (IS-1021)](https://emilms.fema.gov/is_1021/groups/80.html) — A conventional method for comparing mitigation cost with expected benefits

## the series

Six posts on how to save money with ensurance: the natural asset that lowers the bill, and how the people it protects can pay for it.

1. [how to save money with ensurance](/guide/how-to-save-money-with-ensurance?from=guide) — the hub
2. [what ensurance saves you: the four bills](/guide/what-ensurance-saves-you?from=guide)
3. [how an intervention lowers the loss](/guide/how-an-intervention-lowers-the-loss?from=guide)
4. [the quote beside the cost of doing nothing](/guide/the-quote-beside-the-cost-of-doing-nothing?from=guide) — this post
5. [ensurance and your cost of capital](/guide/ensurance-and-your-cost-of-capital?from=guide)
6. [split the bill for what lowers it](/guide/split-the-bill-for-what-lowers-it?from=guide)

Sister series: [how to lower insurance premiums](/guide/how-to-lower-insurance-premiums?from=guide), the insurance bill itself. And the other side of the ledger: [how to make money with ensurance](/guide/how-to-make-money-with-ensurance?from=guide).