AXA XL looks to develop nature-based insurance solutions to close protection gap

Re/insurer AXA XL is looking to develop insurance and finance products that incorporate nature-based solutions to help close the protection gap and build resilience against coastal flooding.

A new report, supported by AXA XL, suggests that insurance could cost-effectively help protect and restore mangrove forests, which can offer increased resilience and protect against coastal flooding.

The report identified 3,000 km of coastline across 20 states, territories and countries in the Caribbean region where post-storm mangrove restoration would provide flood protection benefits that significantly outweigh the cost of mangrove rehabilitation.

These mangroves could be paid for by insurance and other mechanisms, it said.

The report suggests that a parametric insurance policy based on wind speed is most feasible and could be paired with a traditional indemnity policy to cover both short-term and longer-term restoration actions.

The funding sources and beneficiaries of the programme, whether public or private bodies, will significantly influence how a mangrove insurance scheme is structured, it noted.

Although the US and the Bahamas have the most robust insurance markets, mangrove forests' protective benefits are also significant in the Dominican Republic and Jamaica due to their high population densities, the report found.

Globally, mangroves protect 15 million people from flooding and also reduce flood damages by $65 billion every year, according to data cited by the report. The first 100 meters of mangroves forests can be particularly critical, as they can lower wave heights by as much as 66 percent.

The re/insurer noted that integrating nature-based solutions alongside more traditional coastal defences is seen as a critical component of disaster risk management and climate adaptation.

Chip Cunliffe, director of sustainable development at AXA XL, said: “As part of our Ocean Risk Initiative, we’re looking to develop insurance and finance products that incorporate nature-based solutions - including mangroves - to help close the protection gap and build resilience at local, regional and global levels.

“AXA XL is an innovator in this field, and in line with AXA Group’s focus on climate and biodiversity, we are using our risk management expertise to look for new ways to reduce community vulnerability to coastal flooding, which is expected to increase as sea levels rise. A specific mangroves solution could provide effective protection to coastal communities.”

The Nature Conservancy, which helped develop and launch the first coral reef insurance policy off Quintana Roo in Mexico, is helping lead this new approach.

Mark Way, director of coastal risk and resilience at The Nature Conservancy, said: “This report represents an important milestone in our work to develop insurance solutions that can help protect valuable coastal ecosystems that provide so many vital services, including enhancing resilience to storm surge and coastal erosion. We are about to begin a second phase of research to build on this report and deepen our understanding of technical aspects and the potential demand for an insurance product to protect mangroves in particular locations in the Caribbean.”