The first coral reef insurance policy in the U.S. will ensure that Hawai‘i's reefs can be restored if damaged by major storms.
Coastal areas worldwide are increasingly at risk from intense storms, sea level rise, erosion and other impacts of climate change. Hawai‘i is no exception, and in 2018 alone was threatened by two Category 3+ hurricanes. Coral reefs are our best defense against intense storms and other climate threats, so restoring and maintaining them is essential. In addition, coral reefs are deeply rooted in Hawaiian culture and provide significant value to the local tourism, recreation, and fisheries industries.
As demonstrated with the Coastal Zone Management Trust in Quintana Roo, Mexico, and also the Mesoamerican Reef Fund (MAR Fund), a collaborative effort spanning Mexico, Belize, Guatemala and Honduras to protect the Mesoamerican reef, reef insurance is an effective tool that can provide vital funding when it is urgently needed to repair reefs when damaged by hurricanes.
Building on those models and research published by TNC in 2020 showing reef insurance might be possible in Hawai‘i and Florida, TNC worked with insurance advisor WTW to develop a policy to insure coral reefs in Hawai‘i. The policy provides pre-agreed payouts for repair and restoration based on pre-established parameters, in this case windspeed rates of 50 knots (57 mph). The policy is the first of its kind in the U.S.—and it expands coverage beyond hurricanes to include tropical storms—paving the way to develop insurance policies for other natural assets and risks.
Insuring Nature's Defenses
The notion of insuring coral reefs—not just for their own sake, but for the sake of protecting coastal communities—was analyzed after two hurricanes struck Mexico's Caribbean coast in 2005, causing US$8 billion in damage. Some hotels and beaches in Mexico's Puerto Morelos suffered less damage than other areas, and researchers found that the Mesoamerican Reef played a big part in blunting the storms' impacts.
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, mangroves, salt marshes, and coastal dunes 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, like other ecosystems, can themselves be damaged by severe storms—especially those that have already been weakened by development, pollution, disease, overfishing and bleaching—which then greatly reduces the flood protection benefits they offer for coastal communities.
To confront this threat, TNC and project partners in Mexico trained and formed post-storm response teams called Reef Brigades to complement the reef insurance. Reef brigades provide on-the-ground capacity to quickly repair reefs damaged by storms. The same year, a public-private partnership including the State of Quintana Roo government, hotel and tourism representatives, and TNC established the Coastal Zone Management Trust and purchased the first-ever coral reef and beach insurance policy in 2019.
As with Hawai‘i's new insurance, the parametric policy is triggered when a specified set of conditions are met, such as certain high wind speeds occurring in a defined geographic location. When that happens, the insurance payout will be made quickly, allowing swift damage assessments, debris removal and repairs to be made.
Reef Repair in Action
The initiative was put to the test in 2020, when Hurricane Delta struck the Caribbean coast of Mexico as a category 2 storm. First, the brigades were deployed to stabilize large and medium size coral colonies. In the first 11 days, the brigades collected more than 8,000 coral fragments broken by the hurricane, and planted them in the reef, substantially enhancing the recovery process.
And the insurance policy was triggered, paying nearly $850,000 to expand the post-storm response and fund large-scale repair efforts on the reef. This payout is the first time ever that funding from an insurance policy was available to help the reef recover.
“This is a very significant milestone in our climate risk reduction and management work, where we use nature’s inherent capacity to protect coastal communities from the impacts of climate change and utilize innovative finance mechanisms, such as insurance, to inject private sector funds into ecosystem repair and restoration efforts that maintain the flood risk reduction, livelihoods, and sustenance benefits provided by the ecosystems,” said Eric Roberts, TNC’s senior manager of climate risk and resilience. “The fact that the insurance policy has paid out, and will fund vital reef repair activities, is a win for nature and a win for the coastal community, and it will drive further interest in conservation finance and the need to protect marine and other ecosystems across the globe.”
Infographic: Insuring Nature
The Nature Conservancy is working with its partners to design and test innovative strategies to finance coral reef restoration and protection, which will in turn protect coastal economies and livelihoods.DOWNLOAD
A Growing Opportunity
TNC is now working to replicate models developed in Quintana Roo and Hawai‘i for other reefs around the globe and investigate whether other ecosystems such as coastal mangroves and wetlands could benefit from a similar approach and whether other risks to ecosystems could be covered. To date, TNC has engaged various partners in academia, international development, humanitarian and disaster risk reduction, and the insurance and reinsurance community. Prospective projects are currently being explored in the Caribbean, Asia Pacific, Australia, and the United States.
An emerging body of research suggests there’s a growing opportunity—and need—for this kind of innovation. A study authored by TNC scientists for the Journal of Marine Policy used a combination of data-driven academic research, as well as crowd-sourced and social media-related data to analyze all coral reef-based economies around the world and map those reefs by tourism revenue, ranging from US$1 million to US$40 million per square kilometer. The study found that coral reef tourism generates US$36 billion globally every year.
But that value doesn’t take into account the significant coastal protection benefits coral reefs provide to nations around the world. If just the top meter of a coral reef is lost, damages from storm surge could double or even triple. In the U.S. alone, coral reefs provide flood protection to over US$1.8 billion of coastal infrastructure and economic activity. With billions of dollars more of built capital protected by coral reefs from flooding around the world, it’s clear that there is a market ripe for financial products and mechanisms that would protect reefs and ensure greater coastal resilience.
More importantly, it’s clear that lives and livelihoods are at stake. Recent research suggests hurricanes could become more intense in the future, putting coastal communities at even greater risk. We can't afford to do nothing—literally.
TNC received generous support from the Rockefeller Foundation and Bank of America Foundation to develop the insurance concept and from Swiss Re Foundation for the development of a first responder protocol, reef restoration protocol and for training the Reef Brigades.
The Hawai‘i reef insurance policy would not have been possible without the support of the Bank of American Charitable Foundation and Howden Group Foundation.
Primer: Insurance for Coral Reefs
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