Financing Reef Resilience to Extreme Climate Events 

Financing Reef Resilience to Extreme Climate Events

Project Lead: Mesoamerican Reef Fund (MAR Fund)
Supporting partners: WTW, Caribbean Biodiversity Fund, Forever Costa Rica Association, Fondo Acción, InsuResilience Solution Fund, KfW, UNDP/ISGAP and AXA Climate
Financial Support: The Government of Canada and the UK’s Blue Planet Fund
Location: Belize, Guatemala, Honduras, Mexico, Costa Rica, and Colombia

Summary 

MAR Fund, working with partners across Latin America and the Caribbean, and technical partner WTW, is scaling innovative risk financing mechanisms to build the resilience of coral reefs to extreme climate events. Hurricanes are one of the leading drivers of coral cover loss in the Caribbean, and immediate post-hurricane reef response is critical to the recovery process of this ecosystem.

This project facilitates the development of a coral reef insurance cover that support the coordinated response plans, in-the-water skills, and post-hurricane funding that coastal communities need to kickstart reef recovery and maintain the myriad benefits that these high-value natural assets provide. Building on early project success in the Mesoamerican Reef region, where insurance cover is currently live for eleven reef sites across four countries, MAR Fund and WTW are now working with the Caribbean Biodiversity Fund, Forever Costa Rica Association, and Fondo Acción to further build and scale this mechanism across the Caribbean Basin. 

Challenge 

Nearly 200 million people depend on coral reefs for security and livelihoods. The Mesoamerican Reef (MAR) provides estimated annual environmental services worth USD$320 to USD$438 million in coastal protection, USD$183 million in reef-related fishing, and USD$3.9 billion in reef-related tourism. Yet reefs are some of the most threatened ecosystems on Earth, and hurricane-related surge and debris from high winds can cause severe damage. While rapid response is essential for securing the benefits that a healthy reef provides, they are rarely included in post-disaster management plans and budgets. Instead, reef response is dependent on reactive, time-consuming, and often unreliable fundraising, which disincentivizes future investment. Evidence shows that to effectively repair the reef following a storm, response must begin within two weeks of a damaging event. 

Solution

MAR Fund and WTW have developed a bespoke parametric insurance product to cost-effectively finance post-storm reef response. First launched in 2021 as the MAR Insurance Programme, this solution now covers the hurricane risk to eleven priority reef sites of the MAR. The liquidity provided is fundamental to a rapid and effective reef response, which is critical to enhance the resilience of the reef ecosystem and the people and nature it supports. This innovative financial solution protects approximately 10,000 hectares of live coral cover, enhances the coastal resilience of more than two million local people, and secures more than USD$3.3 billion in reef-related income in the region every year. 

The first pay-out was triggered on 2 November 2022 when Hurricane Lisa hit the covered reefs of the Turneffe Atoll in Belize. This USD$175,000 pay-out was rapidly available to finance reef response in the Turneffe Atoll Marine Reserve, demonstrating the value and effectiveness of the parametric insurance instrument.

Scalability and Next Steps

MAR Fund is now working with other partners across the region. Support through ORRAA from the UK’s Blue Planet Fund has enabled MAR Fund and WTW to collaborate with the Caribbean Biodiversity Fund to leverage experience and scale the innovation across additional Caribbean Small Island Developing States.  

With further support through ORRAA from the Government of Canada, the project is working with Fondo Acción to develop a hurricane reef insurance programme for the islands of San Andrés and Providencia, Colombia, which were devastated by Hurricane Iota in 2020. This is part of Fondo Acción’s multi-year project to build the long-term resilience of the reefs and local communities, with support from the Global Fund for Coral Reefs and Blue Action Fund. In addition, MAR Fund, WTW and Forever Costa Rica Association are working together to explore the feasibility of trigger-based risk financing mechanisms to cover additional key risks to coral reefs, including marine heatwaves (leading to bleaching) and rainfall-driven runoff.