Willis Towers Watson collaborates on world-first coral reef insurance

Advisory, broking, and solutions company  Willis Tower Watson has launched a multinational partnership project with the Mesoamerican Reef Fund to develop and implement insurance solutions that help protect and restore the 1,000km reef system along the Caribbean coast.

The goal of the Mesoamerican Reef Insurance Programme is the first multinational collaboration that will design and implement parametric insurance covering hurricane risk to the Mesoamerican Reef (MAR) and the communities that depend on it for protection, food security, and livelihoods. Pilot coverage for key reef sites in Mexico, Belize, Guatemala, and Honduras will enhance the climate resilience of almost 2 million beneficiaries.

The Mesoamerican Barrier Reef System is listed as critically endangered by the IUCN Red List of Ecosystems and is home to 65 species of coral and more than 500 species of fish, as well as many other protected marine species. Coastal wetlands, lagoons, mangrove forests, and seagrass beds also protect against storms and coastal erosion.

As the effects of climate change and other stressors exert increasing pressure on the reef, the risk of a hurricane impact leading to irreversible coral degradation and mortality has grown. Early action to clean up the reef and jump-start regeneration and recovery is critical to reducing the overall impact of lost ecosystem services—in both social and economic terms. However, the restoration of natural ecosystems is often not a priority in the aftermath of extreme events, as resources are focused mainly on grey infrastructure and property.

The project is being co-funded and implemented by Willis Towers Watson and the Mesoamerican Reef Fund (MAR Fund), the regional financing mechanism for large-scale maintenance, conservation, and restoration of the reef system. MAR Fund will be the policyholder of the insurance programme.

John Haley, chief executive officer of Willis Towers Watson, said: “In 2018, we launched the Global Ecosystem Resilience Facility at the World Ocean Summit in Cancun. We are delighted to be back in central America, partnering with the MAR Fund and supported by the InsuResilience Solutions Fund, to build resilience of the Mesoamerican reef and its communities. Marine ecosystems may be ‘free’ public goods, but their active maintenance is essential in sustaining their health and value. This programme helps us learn how insurance can provide a unique shared governance framework to manage reefs and other vulnerable natural ecosystems.”

María José González, executive director of MAR Fund said: “This collaboration is a great opportunity for the MAR region. We see the insurance model as a risk management tool that will provide immediate funds for reef restoration, thereby contributing to strengthening coastal resilience, and to the recovery of the MAR and the environmental services it provides. MAR Fund will be the policyholder and will manage the pay-outs. We will work closely with national governments and other partners and stakeholders to build the needed capacities for emergency response and preparedness.”

The InsuResilience Solutions Fund (ISF), managed by Frankfurt School of Finance and Management and funded by KfW Development Bank, has signed the grant funding agreement for the insurance programme.

Annette Detken, director of the ISF, said: “This partnership combines the expertise of local partners and the insurance sector, ensuring that products are developed according to the needs of the vulnerable population. Our grant will co-fund the development and implementation of this innovative insurance product insuring coastal ecosystems that provide much needed services for local communities. We believe this insurance solution could serve as a model for other countries seeking to protect important natural assets, like coral reefs.”

The Ocean Risk and Resilience Action Alliance, with funding from Global Affairs Canada, supported the preliminary design of the insurance mechanism. Pay-outs will be triggered by the intensity of a hurricane, converted to an estimate of the extent of damage to the reef through a novel reef risk model. A group policy will cover the pilot reef sites, with a bespoke pay-out structure reflecting the cost of response at each reef site at different damage levels.

Simon Young, a senior director in the Climate and Resilience Hub at Willis Towers Watson added: “We are grateful to the ISF for supporting the design of the MAR Insurance Programme, and most importantly, funding its implementation. Tangible examples like this demonstrate the possibilities for innovative financing to support practical action to build the resilience of crucial ecosystems and the communities, livelihoods, and biodiversity they support, and to unlock large-scale investments in natural assets which are critical to address loss of biodiversity and increasing impacts of climate change.”

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