Insuring the benefits of nature-based solutions in the Caribbean
Coral reefs and mangroves help to protect communities in the Caribbean from coastal flooding. Insurance could help to manage the risks to these natural assets, but this requires an accurate economic quantification of their benefits.
Our work with the World Bank explored the impact of nature-based solutions, and how they could be incorporated in to insurance products.
Coral reefs and mangroves offer protection against coastal flooding and wave impacts during storms. This is particularly important in the Caribbean, where tourism - a cornerstone of many economies in the region - relies on the health of these natural barriers. Insurance can play a pivotal role in managing the risks to both coastal assets and the reefs and mangroves themselves.
However, one of the main challenges in developing insurance products that consider the benefits of reefs and mangroves is accurately quantifying the economic risk reduction they provide to coastal infrastructure. To address this, we worked with the World Bank to create and test a framework for quantifying these benefits. We also worked with insurance experts to explore the feasibility of incorporating mangroves and reefs into various insurance products.
Using hydrodynamic and flood risk models, we calculated the Expected Annual Damage for built assets in the Caribbean under different scenarios of reef and mangrove health and extent. Our findings highlighted that the health of a reef, particularly its roughness, is a key factor in its ability to reduce risk. However, the complex geometry of reefs means that site-specific modelling is necessary, making generalisation difficult.
Developing indemnity insurance products that account for these natural barriers would require significant updates to existing catastrophe models used by the insurance industry, as well as customisation for specific locations. However, parametric insurance products could offer a way to fund the restoration of damaged reefs and mangroves.
Our work provided valuable evidence on the benefits of reefs and mangroves and the potential for developing both indemnity and parametric insurance products. This will help the World Bank and other organisations to identify opportunities to integrate nature-based solutions into financial risk management strategies.
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