Hurricane Lisa’s landfall in Belize on November 2nd has triggered an innovative parametric insurance product that provides a form of protection to fund repairs following storm damage to the largest barrier reef in the Atlantic Ocean.
The Mesoamerican Reef system which lies in the Caribbean Sea, touching the coasts of Mexico, Belize, Guatemala and Honduras, was impacted when hurricane Lisa struck the the Turneffe Atoll, off the coast of Belize as a Category 1 storm.
This triggered the parametric insurance arrangement, activating a $175,000 pay-out under the programme’s insurance policy, to finance immediate reef recovery and restoration following damage from the hurricane.
The idea is that covering the reef with insurance so it can be repaired after a disaster, ultimately protects the communities that rely on it for coastal protection, fishing grounds and other forms of income related to the reef.
The parametric insurance product was developed by the Mesoamerican Reef Fund (MAR Fund) and WTW’s Climate and Resilience Hub, while the parametric policy was underwritten by AXA Climate and Munich Re and placed by WTW’s Alternative Risk Transfer team.
It’s a great example of leveraging insurance and reinsurance technology and capital to protect a natural asset, that ultimately protects the local communities that rely on that asset as well.
While the parametric trigger means payouts can be rapid and so repair and restoration work begin swiftly.
Rowan Douglas, Head of the Climate and Resilience Hub at WTW, explained, “WTW is proud to be a part of the team delivering this financial innovation to the MAR region. The MAR Insurance Programme ensures funding is available for reef restoration, supporting the long- term health of this crucial yet highly threatened piece of natural infrastructure.
“It also 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 both shock and slow onset climate hazard.”
María José González, Executive Director of MAR Fund, added, “As a private environmental fund, MAR Fund supports regional access to the right kinds of financial tools, which provide funding when it is most needed. This pay-out will fund reef repair and build long-term resilience of the ecosystem and the people it supports.”
This parametric insurance program was also financed by the InsuResilience Solutions Fund, building on early support from Global Affairs Canada through the Ocean Risk and Resilience Action Alliance.
Dr Annette Detken, Head of the InsuResilience Solutions Fund, said, “We are pleased to see the mechanism working and seek to further strengthen the application and impact of pre- arranged, trigger-based financing, especially for fragile ocean and coastal ecosystems such as coral reefs. We hope that parametric disaster risk finance can help unlock resources to sustain the resilience of communities and economies against climate change.”
Antoine Denoix, CEO of AXA Climate, commented, “Hurricane Lisa is an unfortunate reminder that climate change is devastating coral reefs worldwide. For AXA Climate, exploring parametric insurance solutions is crucial to enhancing the resilience and regeneration of our natural ecosystems. Today, we are pleased to take part in providing fast financial recovery for science-based restoration and maintenance of the Mesoamerican Reef. This innovative financial mechanism changes the way we care for and protect natural assets while supporting local communities and economies that depend on them.”
Michael Roth, Public Sector Practice Lead for Capital Partners at Munich Re, also said, “The swift pay-out underscores the value proposition of parametric insurance. It will enable MAR Fund to finance immediate repair, thus minimising damage to the insured coral reefs. Munich Re is proud to show how insurance contributes to enhancing the resilience of crucial ecosystems.”