Resilience strategies, opportunities and transition risks
The use of parametric insurance is one of several finance mechanisms to help manage the degradation of coral reefs.
USE OF PARAMETRIC INSURANCE ON THE MESOAMERICAN REEF
As the Nature Conservatory has noted; 60 “The benefits and beneficiaries of this innovative climate risk insurance mechanism are manifold. The local community benefits because reef preservation enables the hotel industry wand ecotourism to thrive, and with it the services, income and jobs on which they depend. Hotel owners benefit because there is less beach erosion, and reduced risk to income and assets, thereby protecting a AUD 9 billion tourism industry. Government benefits because increased coastal resilience means fewer costs from infrastructure loss, and more resilient coastal industries. Conservation benefits because sustained financing mechanisms for maintenance and restoration result in a valuable natural system being preserved. And the insurance industry — now finally recognized as a critical tool for sustainable development — can benefit through the creation of a new market while also growing resilience.”
The newly launched Ocean Risk and Resilience Action Alliance is a multi-sector collaboration that looks to incentivize greater private investments and blended finance into coastal natural capital by pioneering ground-breaking products that both address ocean risk and build resilience. Private financing and blended finance tools, including through the expansion of insurance coverage, are currently underleveraged. Private capital is available if resilience investments can generate acceptable risk adjusted returns. The Alliance will therefore seek to unlock greater private and blended finance investment in coastal resilience, by working in three priority areas: 1. Practice & innovation Building risk-adjusted, innovative and scalable products that change the risk perceptions of investing in coastal natural capital and increase resilience while delivering a return on investment. 2. Research & knowledge Accelerating research and using data to better understand, analyse, predict, model and manage ocean risk. 3. Policy & influence Informing and advancing ocean resilience policy, governance, private sector and public understanding.
A solution using a trust fund arrangement and a parametric insurance product was adopted by the state government of Quintana Roo in Mexico for a portion of the Mesoamerican Reef along Mexico’s Yucatan Peninsula. 59 A dedicated management trust will be funded by municipal governments and the tourism industry, to fund maintenance projects to protect the reef before and after storm surges. “Coral reef insurance” will also be taken out, with the policy triggered by major hurricanes, providing funding to rebuild and regenerate the reef. The insurance premiums will be collected as a portion of tourism taxes and other government resources. The product was designed by global reinsurer Swiss Re, whose Chairman Martyn Parker has noted; “By combining private capital with public resources in a trust to fund premiums, we can help governments in vulnerable regions plan ahead more consciously to protect important natural assets, crucial to both the planet and the economy, like the coral reefs. In helping to speed up the recovery after a natural disaster, this type of innovative insurance will also help reduce the hit to the local and national economies overall.”
Chip Cunliffe, Co-Chair – Ocean Risk and Resilience Action Alliance Secretariat
59 https://www.reinsurancene.ws/swiss-re-backs-innovative-coral-reef-insurance-solution/ 60 https://www.nature.org/en-us/what-we-do/our-insights/perspectives/reefs-for-resilience-insuring-our-shared-natural- capital
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