Coral Reef Insurance
- Quintana Roo, Mexico
ABOUT THIS ISSUE
Climate change is posing a serious threat to coral reef ecosystems through extreme weather events such as hurricanes
SOLUTION
Coral Reef Insurance is an innovative financial tool against loss and damage of coral reef services, ensuring prompt payment after a hurricane
Value of healthy coral reefs
In many islands and coastal regions, marine ecosystems offer economic value to communities through tourism. Coral reefs generate billions of dollars and offer massive employment opportunities. Healthy coral reefs also contribute a wealth of benefits to communities’ livelihoods and food security as well as coastal protection against disasters and erosion. Climate change poses a serious threat to coral reef ecosystems, through an increase in frequency and intensity of tropical storms, ocean warming, and ocean acidification, etc. Coral bleaching has been observed around the world, diminishing its economic value to nature-based services. Investing in preserving coral reefs needs to be accelerated in the move towards a blue economy.
Innovative coral reef insurance
Coral Reef Insurance is an innovative financial solution that promotes the recovery of local coral reef activities in face of devastating disasters. Coral Reef Insurance is parametric insurance, which is designed to automatically payout when the specified conditions are met at a designated location. Swiss Re Group devised a parametric insurance product to preserve coral reefs against hurricanes, whereby the payment is triggered once wind speed reaches 100 knots or higher. While traditional insurance takes longer to pay out, parametric insurance has the advantage of providing funds quickly as there is no need for damage surveys. This ensures rapid disbursement of funds for restoration measures to deal with reef damage following a severe storm.
World’s first coral reef insurance policy triggered by a hurricane
Coral reefs in Quintana Roo, Mexico attract a great number of tourists. Frequent hurricanes on the Caribbean coast have caused devastating economic damage many times in the past, forcing the closure of tourist hotels in the area. Building an immediate post-disaster response and recovery is critical to effectively deploy people and resources to repair the damage. Quintana Roo Government, in partnership with The Nature Conservancy (TNC), Comisión Nacional de Áreas Naturales Protegidas (CONANP), and hotel owners established trust funds in 2018 to purchase the Coral Reef Insurance offered by Swiss-Re. Hurricane Delta in October 2020, which hit the coast of Quintana Roo, Mexico, officially triggered the world’s first-ever coral reef insurance policy. The resulting payout amount to USD 800,000 will be used to offset the costs of repairing the insured reefs.
Insurance as a solution to Nature-based Solution
Nowadays, insurers diversify offerings with insurance products against climate change impacts such as storm surges, floods, and droughts. Cutting-edge parametric insurances are increasingly used to cover the inevitable loss and damage due to those extreme climate events. The advance of monitoring technology and risk modeling and scenario analysis has enabled such innovative products. For the sustainable use of ecosystems to benefit communities, insurance products to address climate change could be one convincing solution. The rapid recovery of corals and other important ecosystems is key to the sustainability of the economic value of biodiversity. The world's first coral insurance policy is an inspiring example of such a path-breaking tool.
