The Riviera Maya — an idyllic strip of Caribbean coastline in the Mexican state of Quintana Roo, stretching from just south of Cancún all the way to Punta Allen — is Mexico’s number-one tourism destination. But visitors from around the world are likely unaware that just beyond its powder-white beaches, below the sea, a natural wonder can be found: the Mesoamerican Reef, the largest barrier reef system in the Western Hemisphere.
The Mesoamerican Reef spans a total of nearly 700 miles, from the northern tip of the Yucatán Peninsula down through the Bay Islands of Honduras ― second only in size to Australia’s Great Barrier Reef. It boasts one of the world’s most biodiverse marine environments. The reef’s 60 types of hard coral provide habitat for over 500 fish species and five species of marine turtles, and attract one of the world’s largest congregations of whale sharks. And like other coral reefs around the globe, it is suffering the destructive effects of a climate in crisis.
In Quintana Roo, the reef is a crucial part of the local ecosystem and the local economy — and both are in peril. Last year the state accounted for some $15 billion of the $25 billion that tourists spent in Mexico. Now it is facing massive pandemic-driven losses. As the region slowly emerges from the coronavirus lockdown, an innovative experiment is underway to safeguard the reef and the tourism industry it helps support: A 100-mile stretch of the Mesoamerican Reef is the world’s first natural asset protected by an insurance policy.
The policy is intended to provide an immediate infusion of cash in the event of a damaging storm, allowing the hotel owners and local government who pay its premiums to quickly repair the reef and forestall further degradation. It’s a novel effort to use the economic value of nature to pay for its conservation.
Puerto Morelos, a fishing village 15 miles south of Cancún, is home to one of the most vibrant sections of the reef off the Mexican coast. In 2014, researchers from The Nature Conservancy observed that when hurricanes struck, the town tended to fare better than others in the region. The environmental nonprofit surmised that the reef played a role in the town’s relative resilience.
A healthy coral reef can reduce up to 97% of a wave’s energy before it strikes the shore, mitigating both the effects of storm surge and daily coastline erosion. But unhealthy reefs are themselves vulnerable to severe storm damage, which diminishes their ability to protect coastlines. They need human help to recover after a storm. Debris deposited on the reef — like that dragged from the beach with the receding tides — needs to be removed promptly to prevent further damage, and broken or uprooted coral colonies need to be restored within a few weeks to keep them from dying.
Since 1980, 80% of the living coral along Mexico’s Caribbean coast has been lost or degraded by pollution, disease, overfishing and storms.
“People here view the reef as an irreplaceable legacy that they want to leave to their children.”
“Directly or indirectly, 100% of this community’s livelihood is dependent on the reef and the beaches,” said Miguel Angel Diego, secretary of the board of directors for Corporativo Paraiso de la Bonita, which owns the Puerto Morelos resort Zoëtry Paraiso de la Bonita. “Without them, there would be no tourism here, which is this region’s only industry.”
Following its 2014 assessment, The Nature Conservancy set out to determine the reef’s protective value to the Riviera Maya’s tourism economy, putting a dollar figure on what the losses to beachfront hotels and other tourism operations might be if the reef were not there.
“We realized how important it was to protect the reef not only for its intrinsic value to the region but also for the vital role it played in helping to safeguard local communities,” said Kathy Baughman McLeod, the organization’s director of global climate risk and resilience at the time.
Among other findings, their research suggested that a three-foot loss in the height of the reef crest could quadruple the damage to homes and hotels in Puerto Morelos. They came up with the idea to insure the reef based on its economic value to the region.
With that notion in mind, Baughman McLeod (now director of the Adrienne Arsht-Rockefeller Foundation Resilience Center at the Atlantic Council) first had to determine whether insuring a natural asset was even possible. She contacted an acquaintance at insurance behemoth Swiss Re Group. Using its own risk modeling, combined with The Nature Conservancy’s assessments of the reef’s intrinsic value and the loss avoidance it provided to communities like Puerto Morelos, Swiss Re determined that it could work.
Baughman McLeod and Fernando Secaira, The Nature Conservancy’s climate risk and resilience lead in the region, brought the idea to the Cancún and Puerto Morelos Hotel Association and Quintana Roo representatives. In 2018, the groups created a trust to purchase an insurance policy and pay for the reef’s ongoing maintenance. The Coastal Zone Management Trust was funded by the government of Quintana Roo, with taxes paid by hotels for use of the beaches.
In June 2019, the trust took out the first-ever policy on a natural asset from the Mexico-based insurance company Afirme Seguros, with Swiss Re serving as the reinsurer.
The policy is triggered by hurricane winds reaching 100 knots (about 115 mph) within the insured zone. The payout varies according to wind strength, starting at 40% for winds of 100 knots that can cause moderate damage. Catastrophic wind speeds of 160 knots or more mean a full payout — approximately $3.8 million. The policy was renewed by the trust in June for some $220,000.
“The world needs nature and humans need nature, but the question of how to demonstrate its value persists.”
The funds are paid out within 10 days of a qualifying weather event — a key condition given the small window to repair damaged coral reefs before they die. An advisory committee comprising local hotel associations, scientific experts and non-governmental organizations (including The Nature Conservancy) approves all expenditures for the maintenance and repair of the reef.
For the insurance to truly deliver, the consortium needs people to get out on the reef and make those repairs. Enter the Guardians of the Reef — a volunteer corps of some 60 hotel and restaurant workers, marine biologists and other scientists trained to spring into action in the event of a hurricane, cleaning debris from the reef and re-attaching pieces of coral before they die. There are plans to add another 120 volunteers in the year ahead. (In the event of a weather catastrophe that would potentially require months of reef repair, the policy would compensate the Guardians for their work.)
While no hurricanes have struck the Riviera Maya since the insurance’s inception, the Guardians have been dispatched some half-dozen times in the last year. Using boats and diving gear donated by local businesses, they have responded to incidents the policy doesn’t cover, including close calls from nearby tropical storms and minor damage caused by boats hitting the reef.
“People here view the reef as an irreplaceable legacy that they want to leave to their children,” said Diego, a resident of Puerto Morelos for over 15 years and an early proponent of the insurance initiative.
Efforts to restore and protect threatened ecosystems — so-called natural climate solutions — are increasingly being recognized as effective tools against climate catastrophe.
“This is the way that everyone’s going — reinforcing natural systems and letting nature do what it’s always done,” said Rob Moir, president and executive director of the Ocean River Institute, a conservation nonprofit based in Cambridge, Massachusetts. He pointed to coastal barrier replenishment projects in Boston and Louisiana.
Moir sees the insurance scheme as a useful way to support this kind of work: “Global warming is making storms stronger, but we can use policies like these to work with nature to better protect what we still have.”
An insurance policy doesn’t do anything, of course, to address the root causes of coastal damage, such as pollution and overfishing. But in case of emergency, Moir said, it’s good to have money at the ready.
“Traditionally, if a cruise ship crashes into a reef or there’s an oil spill, the cruise or oil company would be held responsible, and you end up in the courts fighting them forever for damages,” he explained. “Putting an insurance plan like this in place means when a storm hits or an accident happens, the funding is readily available to quickly address the damage. It’s brilliant.”
Moir also noted that insurance policies funded by the users and beneficiaries of natural assets could make communities less reliant on government programs, which are subject to the budgeting whims of each administration.
Using private money for conservation of public lands can be a contentious proposition. But Baughman McLeod is confident that the insurance project will become a model for other communities and businesses to monetize the protective value of nature and invest in natural solutions to the effects of climate change. “I think there’s no question market mechanisms will be increasingly applied to protect natural assets,” she said.
In January, for the first time, the World Economic Forum named biodiversity loss as one of the top five risks to the world over the next decade and warned that “businesses should develop metrics that assess the value of nature to their work and make these central to their decision-making.”
Swiss Re is exploring the possibility of similar policies to protect reefs in Asia, Oceania and the Dominican Republic, some in collaboration with The Nature Conservancy. The company is also eyeing policies to protect mangrove forests — 50% of which have been lost to deforestation worldwide in the last 50 years — in Mexico, Brazil, China and Southeast Asia. Mangroves — specifically their thick, virtually impenetrable roots — act as natural buffers against storm surges, a burgeoning threat as sea levels rise.
“Our strategy is to work with various stakeholders, including governments and the private sector, to make communities more resilient through nature-based solutions,” said Rubem Hofliger, Swiss Re’s head of public sector solutions for Latin America.
The Nature Conservancy will soon embark on a feasibility study in Indonesia, the Philippines, the Sullivan Islands, and Fiji looking into developing similar reef-protection policies in Asia. With the help of a $1 million grant from Bank of America, the organization is conducting research in Hawaii and Florida, where reefs provide both states with protection valued at over $1.5 billion annually to property and economic activity. The nonprofit and Swiss Re would also like to create a policy to cover the Great Barrier Reef.
As for the Mesoamerican Reef, The Nature Conservancy is working to extend insurance coverage to protect stretches of the reef off southern Mexico and Central America. With funding from Swiss Re’s philanthropic arm, the organization plans to train reef first-responder brigades in Belize in October, followed by Guatemala and Honduras early next year, said Secaira.
“The world needs nature and humans need nature, but the question of how to demonstrate its value persists,” said Baughman McLeod, who argues that showing people nature’s value in terms of dollars and cents could be the most effective way to protect it. “This project was a test case to prove there’s an economic value and market for the services provided by this reef.”
She added: “This is just the beginning because we’re going to have no choice.”
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