Insuring Nature to Ensure a Resilient Future

January 10, 2021
Climate Change
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What’s happening on a 160-kilometer stretch of coastline on Mexico’s Yucatan peninsula may change how the world values its coral reefs and the role of the financial sector in protecting and restoring natural landscapes.

In 2005, Mexico’s Caribbean coast was struck by two hurricanes, causing US$8 billion in damages and closing hotels and other businesses in Cancún long enough to cause further economic impact. But some hotels and beaches in Puerto Morelos suffered less damage than other areas in the state of Quintana Roo. Further analysis pointed to an important connection—Puerto Morelos was protected by a stretch of the Mesoamerican Reef.

A healthy coral reef can reduce up to 97 percent of a wave’s energy before it hits the shore.

This finding has implications for the estimated 840 million people around the world who live with the risk of coastal flooding. For these coastal communities, natural systems like coral reefs, beaches and wetlands provide the first line of defense against storms. In fact, a healthy coral reef can reduce up to 97 percent of a wave’s energy before it hits the shore, reducing both the effects of storm surge and daily erosion.

But coral reefs can themselves be damaged by severe storms—especially those that have already been weakened by pollution, disease, overfishing and bleaching—which then greatly reduces the protection they offer for coastal communities.

To confront this threat in the Mexican state of Quintana Roo, various stakeholders—the state government, hotel owners, The Nature Conservancy (TNC) and The National Parks Commission (CONANP)—have come together to pilot an innovative conservation strategy to build Post Storm Response Capacity: the Reef Brigades.

Created by CONANP in 2018, the Reef Brigades represent an organized, highly qualified team of community members that are trained and equipped to repair the reef after a storm.  The same year, Quintana Roo government established the Coastal Zone Management Trust, which is designed to collect and manage funds for reef maintenance and repair. And in a global first, the trust purchased the first ever coral reef and beach insurance policy in 2019 and renewed in 2020 to ensure these vital ecosystems have funding for repairs after extreme storms hit.

How does the insurance work?

The insurance policy is managed by the Coastal Zone Management Trust. Like the brigades, the trust was established by the state government of Quintana Roo in Mexico, with participation of the tourism industry, TNC and other civil society and partners in the local science community, and the international insurance industry.

The trust fund buys the insurance policy and is designed to accept funds from different sources to support the maintenance of Quintana Roo’s reef and beaches. The 2019 and 2020 policy’s coverage extended across six municipalities and approximately 160 kilometers of coastline, including the towns of Cancún, Playa del Carmen, Cozumel and Puerto Morelos.

Reef Insurance Primer

How the reef insurance works

The insurance is a one-year parametric policy, a kind of insurance in which the policy is triggered not by financial losses, but when a specified set of conditions are met. This means that when wind speeds exceed 100 knots are recorded in a predefined area—as happened with Hurricane Delta—an insurance payout will be made very quickly to the trust fund, allowing swift damage assessments, debris removal and initial repairs to be carried out. Longer periods of restoration and recovery work may follow to restore the reef’s value as a coastal barrier.

This initiative represents a crucial step in the development of financial mechanisms that protect nature and benefits people. Extensive multi-stakeholder collaboration—including valuable guidance from reinsurer Swiss Re—helped take the idea of insurance for the Mesoamerican Reef from concept to reality.

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