Understanding global risks to coral reefs, and the role of insurance in mitigating them

Coral reefs are a first line of protection for coastal communities and infrastructure around the world. Healthy reefs can cut wave energy by up to 97%, significantly reducing the flood damage caused by storms. But reefs themselves are being degraded by ocean warming, pollution and hurricanes, decreasing their capacity to provide this vital protection.

The need for investment in reef resilience is urgent, and ORRAA member The Nature Conservancy (TNC) is pioneering the use of reef insurance as one way to catalyse investment. Building on their preliminary reef insurance model implemented in Quintana Roo, Mexico, and to inform the design of future models worldwide, TNC completed a global analysis of the risks faced by coral reefs, working closely with Universidad Nacional Autónoma de México (UNAM). The analysis, funded via ORRAA by the Government of Canada through Global Affairs Canada and to be published in late 2021, compares the severity, frequency and extent of impacts on reefs caused by 16 risks, from naturally occurring events such as cyclones, tsunamis, diseases, and bleaching to events caused by humans such as ship groundings, oil spills, and scuba diving.

The information will help reef managers and other decision makers to better understand the relative relevance of threats to reefs, properly allocate scarce resources, and implement appropriate actions to maximize reef protection and conservation over the long-term. The analysis encompassed the assessment of the relationship between the intensity of cyclones and bleaching events with damages to a reef, which is critical information for risk management, and ultimately, for the development of damage curves and the design of reef insurance policies.

In parallel to the TNC study, fellow ORRAA partner UNDP has compiled a report, ‘Insuring nature to reduce risk: Risk-transfer solutions for coral reefs’, to provide guidance on developing risk transfer solutions, including insurance and investments, for improved coastal resilience through reefs.  UNDP’s research analyses the policy and regulatory framework as well as gaps and solutions, and outlines the specific approach, advantages and impact of reef insurance on the most vulnerable.  It emphasises the role of women and girls in businesses and activities related to reefs, and pinpoints how empowering them can boost resilience efforts.

The report identifies opportunities for collaboration in creating reef restoration ecosystems, supported by a reef disaster risk fund.  It also highlights how insurance pay-outs can fund vital reef repair activities, supported by government commitments and paired with on-the-ground rapid response that can create the perfect formula to quickly repair critical coral reefs.

Recognising that insurance alone cannot address all drivers of reef decline, the report also sets out recommendations for complementary actions to drive lower insurance premiums, restore ecosystems, shape policy and promote education and awareness, while making suggestions on the reef impact assessment framework, measuring goals of reef risk transfer targets.  The report will be launched in late 2021.