Parametric reef insurance
Parametric policy triggered by cyclone wind speed, funding emergency repair of a coral reef rather than compensating a conventional property owner.
Quintana Roo, Mexico, 2018: the world's first parametric policy on a coral reef, funded by a local hotel tax, pays out when hurricane winds exceed a set threshold inside a pre-defined zone, with no post-loss adjusting. The mechanics are standard parametric: fast payment and no argument over quantum. The insured object is anything but standard. It is an ecosystem with no ownership title and no balance-sheet value in the usual sense, worth something through indirect services such as shoreline protection against erosion and storm surge, and support for fisheries and tourism. So the policyholder is a public body or a conservation group, which uses the money to put dive teams in the water and stabilize broken coral colonies before they die, in the weeks after the storm when the reef's survival is decided. For underwriters, the policy brings natural infrastructure into the insurable perimeter on the strength of its economic function, where the old choice was conventional property or no cover at all.
Bought in 2019 by the government of the Mexican state of Quintana Roo through a coastal management trust funded by a hotel tax, on a structure designed with The Nature Conservancy, the world's first parametric coral reef policy triggers at a defined wind-speed threshold and funds a team of divers to repair broken corals within days of a hurricane.
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