Financing reef resilience to extreme climate events with parametric insurance

2023

Relevant Topic(s) Tags

Disaster Risk Insurance

Adaptation & Resilience

Summary

Rapid disaster responses are essential for conserving the benefits that healthy reefs provide, however they are rarely included in post-disaster management plans and budgets. Instead, reef response is often dependent on reactive, time-consuming, and often unreliable fundraising, which disincentivises future investment. The Mesoamerican Reef (MAR) Fund, supported by WTW developed a uniquely designed parametric insurance product to provide cost-effective coverage to priority sites along the Mesoamerican Reef. This first insurance policy was purchased by the MAR Fund with financial support from the InsuResilience Solutions Fund. This is a use of parametric insurance, which is a type of insurance that pays the policyholder a set amount following an event rather than an amount based on calculated losses. This enables rapid, post-storm payouts. Storm wind intensity triggers immediate, post-storm payouts at specific levels to cover the costs of reef recovery response.

Key Takeaways:

Innovative insurance mechanism: Integrating parametric insurance with other risk management strategies has proven successful in strengthening coastal resilience.

Rapid funding deployment: Insurance pay-outs can be made within days of an event when based on pre-agreed, objective, independent, and rapidly verified event parameters.

Replicability: Parametric insurance can be scaled across other hurricane basins globally as well to cover additional coral reef risks, such as bleaching and rainfall-driven runoff.

Toolkit of financial instruments to support coral reefs: To protect, restore, and conserve coral reefs, a complementary set of financial tools is needed. For example, apart from the Mesoamerican Reef Insurance Program, MAR + Invest supports the conservation, protection, and restoration of coral reefs through the development and financing of commercially viable projects.