Broker WTW said today that the innovative parametric hurricane insurance program to protect the Mesoamerican coral reef has been expanded again, with AXA Climate as the sole capacity provider and a refined parametric trigger structure utilised this year.
It’s the third renewal of the product that protects the Mesoamerican Reef system and the communities that rely on it against impacts from hurricanes.
WTW designed and structured this parametric insurance program, with support from the Mesoamerican Reef Fund and InsuResilience Solutions Fund,.
For the first iteration in 2021, the sole insurance carrier sitting behind the parametric reef insurance policy at launch was AXA Climate, the parametric and climate risk transfer focused unit of global insurance and reinsurance carrier AXA Group.
At a renewal a year ago, the program was significantly expanded to cover additional coral reef sites in the southern part of the MAR, while global reinsurance firm Munich Re was selected as a capacity provider alongside AXA Climate for the 2022 renewal.
Now, there has been a further expansion of the program, WTW explained and this year there was support from the InsuResilience Solutions Fund (ISF) and the United Nations Development Programme (UNDP), building on earlier support from the Ocean Risk and Resilience Action Alliance (ORRAA).
Premium support came from the ISF and UNDP (through the AF-EU-UNDP Innovation Small Grant Aggregator Platform (ISGAP).
The product has been scaled up to cover two more sites in Honduras and two more sites in Belize (in partnership with the Wildlife Conservation Society (WCS)), building out the portfolio to 11 reef sites covered by this parametric insurance across the MAR region.
WTW’s Alternative Risk Transfer team again placed the product in markets, but this year only AXA Climate was selected as a capacity provider, it seems.
Antoine Denoix, CEO of AXA Climate, commented, “In the face of increasing climate-related disasters, protecting nature is a mechanism that needs to be thought over the long term. As a pioneer in impact insurance, our team has demonstrated with this third renewal the consistency of its commitment to ocean conservation. AXA Climate is very proud to remain a key partner in the MAR’s resilience and to have contributed to its regeneration after Hurricane Lisa.”
Simon Young, Co-lead of the Disaster Risk Finance and Parametrics team in the Climate and Resilience Hub at WTW, also said, “Entering the third year of this programme demonstrates how the convening powers of collaborative, trusted partnerships and pre-arranged finance can move the needle on coastal protection and ecosystem resilience.”
Building on lessons learned in prior years, not least from the triggering of this parametric coral reef insurance product in 2022 by hurricane Lisa, WTW has refined the parametric trigger structure for the 2023 renewal.
Following the pay-out experience from hurricane Lisa, WTW said it has worked with the MAR Fund to further refine the parametric structure.
The goal was to ensure pay-outs are informed by response capacity, rather than ideal response for reef damage.
WTW said that the adjustment “optimises the product’s pay-out structure and considers the level of local capacity to reasonably implement reef response activities given their number of trained brigade members, ensuring efficient use of premium.”
It’s critical, with parametric triggers and risk transfer structures, to learn from lessons after pay-outs to enhance the coverage and make sure it matches the use case it is needed for, while ensuring premium is used effectively.
María José González, executive director of MAR Fund said, “The MAR Insurance Programme is an innovative risk management instrument that allows the deployment of immediate funds to support the conservation of reefs through emergency response. Through this programme, MAR Fund and its partners, including the governments of the four MAR countries, contribute to the resilience and recovery of the Mesoamerican Reef.”
Dr Annette Detken, head of the InsuResilience Solutions Fund, added, “The MAR Insurance Programme is paving the way for nature-based solutions against climate risks. The ISF is proud to co-fund this innovative insurance programme protecting a unique natural treasure and providing livelihoods for vulnerable people in the MAR region.”