Insurers Make Parametric Pay Out on Coral Reef Damage

Times are changing and maybe parametric payouts to governments, or their agencies who manage areas of natural beauty/scientific interest, will become the norm. Here’s the word from WTW;

The first ever pay-out by the Mesoamerican Reef (MAR) Insurance Programme was triggered on 2 November when the Turneffe Atoll, off the coast of Belize[1], was hit by Hurricane Lisa. The category 1 hurricane event triggered a $175,000 pay-out under the programme’s innovative parametric policy and will finance immediate reef recovery and restoration following damage from the hurricane. 

Developed by the Mesoamerican Reef Fund (MAR Fund) and WTW’s Climate and Resilience Hub, the ground-breaking programme launched in 2021 uses a pre-arranged, trigger-based financing approach to support rapid reef response following damaging hurricane events across the critically endangered 1,000km reef system.

Amplified by global climate change, hurricanes are now a leading driver of coral loss in the region; but without dedicated budgets, reef response is difficult to mobilise in the aftermath of extreme events. Despite their environmental, economic and cultural value, reefs remain some of the most threatened ecosystems in the world.

The parametric policy, underwritten by AXA Climate and Munich Re and placed by WTW’s Alternative Risk Transfer team, covers seven key coral reef sites of the largest barrier reef in the Atlantic Ocean across Mexico, Belize, Guatemala and Honduras. When Hurricane Lisa passed through Belize’s Turneffe Atoll at Category 1 strength, calculations completed by WTW confirmed that wind intensity reached 70 knots, meeting the policy conditions and triggering the US$175,000 pay-out. The pay-out is expected to reach MAR Fund’s Emergency Fund within 14 days of the event. 

Rowan Douglas, Head of the Climate and Resilience Hub at WTW, said: “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.”