When Hurricanes Eta and Iota struck within two weeks of each other in the record-breaking 2020 Atlantic Hurricane season displacing 1.5 million people in Central America, they caused levels of devastation from which countries will take years to recover. Unfortunately, due to climate change, the frequency of severe hurricanes is expected to increase, making such events more likely, and rising sea levels will make associated storm surge flooding, as well as wave impacts, more devastating.
The communities on the Caribbean coast of Mexico, Belize, Guatemala and Honduras are, however, supported by a critical natural infrastructure asset – the Mesoamerican Reef (MAR). The MAR is a barrier reef stretching 1,000 kilometers along the coasts of these four countries. It supports 430,000 hectares of seagrass and 135,000 hectares of coral composed of more than 65 species that together provide a habitat for more than 500 fish species, including the endangered whale shark, one of the largest populations in the world of manatees, and four of the world’s seven marine turtle species. These, in turn, help to support a robust blue economy from tourism to fisheries, underpinning the livelihoods and contributing to the food security of coastal communities. The reef also serves as a nature-based solution to the physical and economic impacts of climate change by helping to protect against sea level rise, storm surge inundation, beach erosion, and wave-induced damage. For example, coral reefs reduce wave energy by up to 97%1, saving nearly $4 billion annually in expected damages from storms globally, including $452 million in Mexico alone2. With coral reefs supporting an estimated one quarter of all marine life, including some as-yet undocumented species3, they are an asset of global importance in the face of the twin crises of biodiversity loss and climate change.
But these reefs and the ecosystem services they provide are at risk from these very same hurricanes, which cause direct physical damage to coral, as well as creating debris which washes onto the reef and causes further destruction, so reducing their ability to provide for their many beneficiaries. Although coral reefs have survived and bounced back from the impacts of tropical cyclones for eons, as the effects of climate change and other anthropogenic stressors exert increasing pressure on reefs, the risk of a hurricane impact leading to coral degradation and mortality has grown, threatening the very existence of the reef, with dire consequences for its beneficiaries. In fact, since 1950, over half of coral cover across the world has already been lost4 yet status quo disaster response and environmental policy often fail to adequately care for these ecosystems. This is especially true in the days and weeks immediately following a hurricane, when scarce public resources are generally allocated to humanitarian response and to supporting public built infrastructure as opposed to natural capital.
Together with MAR Fund, and with financing from the InsuResilience Solutions Fund (building on the early support of Global Affairs Canada via the Ocean Risk and Resilience Action Alliance), WTW created an innovative solution to unlock disaster response financing for the coral reefs of the MAR, using parametric insurance to provide timely and reliable funds for emergency action in the aftermath of a hurricane. This builds the resilience of coastal ecosystems by proactively addressing a post-event funding gap and enabling collaborative, anticipatory planning and preparation before an event occurs, ultimately enhancing response effectiveness and embedding funding for conservation into disaster risk management and planning.
So how does it work? WTW designed a “cat in nested circles” approach where an innermost circle covers the reef area, and three other progressively larger circles sit around this. The pay-out amount increases the higher the maximum windspeed and the closer the hurricane passes to the reef. This approach maximises the efficiency of the programme, and means premiums are not spent on coverage that is not needed.
Leveraging the MAR Fund’s Emergency Fund and the trained brigades available to be deployed at each covered reef site, the insurance product was created within an architecture that allows pay-outs to be deployed very quickly and effectively.
“The MAR Insurance Programme demonstrates the much wider role that insurance can play in ecosystem resilience, conservation financing, and strengthening the economic opportunities of local communities in the face of loss and damage from climate hazards.”
Rowan Douglas | Director of WTW CRH
When Hurricane Lisa passed directly over Belize’s Turneffe Atoll as a Category 1 hurricane on 2 November 2022, the insurance programme was able to prove its value. Calculations completed by WTW as the Calculation Agent confirmed that the wind intensity reached 70 knots, triggering a US$175,000 pay-out, which MAR Fund received in full within just 2 weeks of the event.
Within 48 hours of receiving the pay-out, MAR Fund transferred the funds out to the brigades, and within the space of a month following the event, 13 brigade members were deployed to two Turneffe Atoll sites to rapidly assess damage to the reef and subsequently carry out the first phases of response activities, stabilising and repositioning 178 fragments of staghorn, palmata and elkhorn coral. Fragments of the reef-building staghorn coral, crucial to the very structure and existence of reefs, were fixed on a nursery bed for future out-planting. The brigade members that participated in the response are certified first responders, trained under the MAR Insurance Programme. They were gathered based on the Early Warning and Communication Strategy contained in the Emergency Response Plan for Belize’s covered reef sites, and coordinated by the Turneffe Atoll Sustainability Association (TASA). They were on standby as soon as the hurricane passed over the reef, preparing to enter the water as soon as it was safe to do so, with the promise of an advance from MAR Fund’s Emergency Fund should activities commence before receipt of the insurance pay-out. Having received this within two weeks of the hurricane event, however, existing funds from MAR Fund’s Emergency Fund were not needed.
1 Ferrario, F., Beck, M., Storlazzi, C. et al. The effectiveness of coral reefs for coastal hazard risk reduction and adaptation. Nat Commun 5, 3794 (2014).
2 Beck, M.W., Losada, I.J., Menéndez, P. et al. The global flood protection savings provided by coral reefs. Nat Commun 9, 2186 (2018).
3 Fisher, R., O'Leary, R. A., Low-Choy, S., Mengersen, K., Knowlton, N., Brainard, R. E., et al. (2015). Species richness on coral reefs and the pursuit of convergent global estimates. Curr. Biol. 25, 500–505.
4 Eddy, T.D., Lam, V.W.Y, Reygondeau, G., et al. Global decline in capacity of coral reefs to provide ecosystem services. One Earth 4, 9 (2021).
Hawai‘i will receive pay-outs of up to US$2 million for reef restoration if tropical storms hit, building on the world’s first reef insurance policy covering hurricane damage in Mexico.
The UNICEF ‘Today and Tomorrow’ Initiative, supported by WTW, is projected to benefit 15 million children, young people and mothers each year.
