Insuring coral reefs against extreme weather events

Nearly 200 million people around the world depend on coral reefs to help protect them from storm surges and waves, yet the effects of climate change as well as overfishing, unsustainable coastal development and pollution make reefs some of the most threatened ecosystems on Earth. When a hurricane strikes, heavy seas and debris from high winds can cause severe damage to reefs. Prompt repair by local communities can dramatically reduce the loss of ecosystem services that a healthy reef normally provides, but support and funding for local response activities are rarely included in post-disaster management. 

ORRAA partners Willis Towers Watson (WTW) and the MAR Fund have created an insurance programme that models hurricane risk and offers cost-effective cover to fund prompt, community-led repairs at four pilot reef sites along the Mesoamerican Reef (MAR). The MAR is a vitally important ecosystem stretching along the coasts of Mexico, Belize, Guatemala and Honduras – estimated by the InterAmerican Development Bank to provide annual environmental services worth US$183 million in fisheries, US$3.9 billion in tourism, and US$320 to 438 million in coastal protection.  

Using an innovative model that captures the relationship between the level of cyclone intensity and the level of reef damage at each site, the insurance triggers immediate pay-outs to finance reef repair work. Trained First Responders organised in Emergency Response Brigades clean and repair the reefs shortly after they are damaged – providing temporary earning opportunities to local community members, fishers and tourism workers and minimising the loss of vital reef services to their communities.  

The insurance policy is currently held by the MAR Fund and financed by the InsuResilienceSolutions Fund, with AXA Climate selected as the insurance solutions provider for the program for the four pilot sites. It is now being refined and expanded to cover seven sites for the 2022 Atlantic hurricane season.

An estimated 63% of the population local to the reef sites live in poverty, including 40% in extreme poverty and nearly two million people could eventually see their exposure to ocean risk reduced by the scheme – through increased coastal protection, recovery of environmental services provided by reefs and temporary livelihood opportunities. 

The programme is a vital step forwards in developing comprehensive risk management strategies for the entire MAR, as well as other reefs around the globe – and truly showcases the potential for financial innovation to build resilience in coastal communities adapting to climate change.