Nature Conservancy targets Florida & Hawaii for parametric reef insurance

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Having already developed the first parametric insurance policy to insure and enhance the resilience of a coral reef section of the Mesoamerican Reef in Mexico, The Nature Conservancy (TNC) is now looking to expand the product’s reach into Florida and Hawaii.

Coral reef imageThe Nature Conservancy (TNC) had partnered with global reinsurance giant Swiss Re on delivery of the parametric coral reef insurance in Mexico, creating a product that would aid conservation and also the swift restoration of the reef, if damaged by a major hurricane event.

As a resilience-linked insurance product, offering specific protection linked to a climate-related event through a parametric trigger as well as clear benefits for the local community, the reef insurance product was considered innovative but has not achieved broader adoption yet.

But now an additional $1 million grant has been by the Bank of America to finance TNC’s scientists to conduct studies in both Florida and Hawaii to identify where this type of parametric coral reef insurance and improved reef management could provide a cost-effective solution to coastal flooding and other major storm related risks.

The Bank had previously provided funding for the feasibility study that delivered the Mexico reef insurance product.

“TNC and its partners proved that insuring coral reefs was possible in Mexico,” explained Mark Way, director of Global Coastal Risk and Resilience for The Nature Conservancy. “Now, we are ready to scale this work. The Nature Conservancy is very grateful to the Bank of America Charitable Foundation for its vital, early stage support of our efforts to produce market-driven, nature-based solutions for coastal resilience.”

The reefs of Florida and Hawaii are estimated to provide these regions with over $1.5 billion of protection to property and economic activity from storms, coastal flooding and hurricanes.

As a result, the broadening of the scope of the work surrounding this parametric reef insurance product to Florida and Hawaii is seen as a positive step for the future of valuing and protecting nature.

“By working with partners like The Nature Conservancy, we are able to support the development and implementation of innovative solutions to climate resiliency, water security, conservation and other environmental challenges,” added Andrew Plepler, global head of Environmental, Social and Governance at Bank of America. “Through our sustainable finance efforts and philanthropic support, projects like this can be scaled and replicated, building a more sustainable economy and climate resilient communities.”

TNC’s ambitions for the product don’t stop at Florida and Hawaii though, with other locations also being explored as potentially receptive to this type of responsive protection insurance.

“Early analysis of enabling conditions required for reef insurance suggests that there is enormous potential to scale this work to coral reefs domestically and internationally,” Way said. “In addition to Florida and Hawaii, we are currently exploring opportunities to expand the approach in the Caribbean, Central America, and Asia.”

Fast paying parametric insurance coverage, backed by global reinsurance capacity, can provide the immediate liquidity needed for reef restoration and recovery after major hurricane events.

This not only helps the natural asset itself (the reef) to recover, but also supports the recovery and economic resilience of the local region and industries that rely on the ecosystem the reef provides as well.

Initiatives like this tend to involve traditional insurance or reinsurance backers as they scale up, but in future they could offer opportunity to the capital markets and institutional investors.

Not just in the parametric weather and disaster risk-linked investment they could offer, but also in the financing of resilience aspect as well.

Like the resilience bond, in years to come the financial backing for such efforts could provide new and relatively uncorrelated asset opportunities for investors, as well as a chance for ILS funds to put their capacity to work.

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