Financing the Mesoamerican Reef’s Resilience to Extreme Climate Events
Project Lead: Mesoamerican Reef Fund (MAR Fund)
Support: WTW, Inter-American Development Bank
Financial Support: Government of Canada and United Kingdom’s Blue Planet Fund
ORRAA partner MAR Fund, with support from WTW, is implementing an innovative risk financing programme to reduce the costs of repairing reef damage in the wake of hurricanes and storms. Through insuring response costs, the programme offers a model for assessing and covering different levels of damage to specific reef sites, with response capacities developed and set up for multiple pilot sites along the Mesoamerican Reef.
Nearly 200 million people around the world depend on coral reefs to help protect them from storm surge and waves, and reefs support billions of dollars of economic activity in the tourism and fisheries sectors each year. 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 interruption of ecosystem services that a healthy reef normally provides, but such activities are rarely included in post-disaster management.
The MAR Fund, working with WTW, has created the MAR Insurance Programme to model hurricane risk and deliver cost-effective parametric insurance 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 US$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, a parametric insurance policy has been put in place which triggers immediate pay-outs to finance reef repair work. Working with key partners and the governments of the MAR, trained First Responders 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 InsuResilience Solutions Fund, with AXA Climate selected via competitive process as the risk capacity provider for the programme’s four pilot sites. It is now being refined and expanded to cover additional sites for the 2022 Atlantic hurricane season.
An estimated 63% of the population local to the reef sites lives 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, faster recovery of environmental services provided by reefs, and temporary livelihood opportunities. Economic Valuation of the Ecosystem Services of the Mesoamerican Reef, and the Allocation and Distribution of these Values, Inter – American Development Bank Climate Change Division, May 2021
Scalability and Next Steps
To date, the initial project investment has been leveraged into an insurance product worth US$2.5 million in 2021/22, with multi-year premium finance provided by the InsuResilience Solutions Fund. To scale up the insurance programme, MAR Fund and WTW, with the support of the UK’s Blue Planet Fund and in collaboration with the Caribbean Biodiversity Fund and other partners in the region, will expand the project to design and deliver reliable event response financing for selected pilot sites in the Greater Caribbean region.
Overall, 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.