Insuring Nature: How Parametric Insurance is Protecting Mexico's Coral Reefs
Innovative Insurance for Coral Reefs
In a groundbreaking move, the government of Quintana Roo, Mexico, has purchased a parametric insurance product to protect several miles of coral reef around Cancun and Puerto Morelos. The policy, which can pay up to $3.8 million for hurricane damage, is a first-of-its-kind initiative aimed at safeguarding these vital ecosystems.
Understanding Parametric Insurance
Parametric insurance, which triggers payouts based on clearly defined parameters like wind speeds, is traditionally used by reinsurers for catastrophe risks. However, its application is expanding into sectors like travel, retail, and agriculture. In the case of Mexico's coral reefs, the insurance will be activated if wind speeds exceed 100 knots within the covered area, with payouts split equally between reefs and beaches.
A Scalable Model for Nature Protection
The rapid payout feature of parametric insurance is crucial for reef repair, which needs to be done quickly to prevent further damage. Mark Way, director of Global Coastal Risk and Resilience at The Nature Conservancy, believes this approach could serve as a scalable model for protecting nature. The insurance policy is financed by the Coastal Zone Management Trust, with partners including The Nature Conservancy, the state government of Quintana Roo, and Swiss Re Ltd.
