Posted: Jun 14, 2022
Insurance for the Coral Reef of the Florida Keys

If singers can insure their voice and dancers their legs, airlines their aircraft and land-based solar farms their acres of solar panels, why not insure the reef along the Florida Keys? Truth is, reefs can and are being insured through "Blue Bonds" and parametric insurance policies.  Much like land-based environmental assets are financed through "Green Bonds", Blue Bonds finance marine-based assets.  Why not insure our reef against not only loss of (tourist) business and to safeguard the incredible work being done to restore these iconic treasures but more importantly against damage from heavy storms? 



What is a "Blue Bond"? A Blue Bond is no different from any other bond except that it raises capital to finance marine and ocean-based eco-systems that have positive environmental, economic and climate benefits. Such Blue Bonds can be artfully and strategically constructed to perserve the global blue economy.


The blue economy is of growing importance and gaining momentum amongst policymakers across the world. This is not surprising as the ocean is a significant wealth generator estimated at an annual value of $1.5 trillion per year, making the world's oceans and waters the world’s seventh largest economy.

World's First Coral Reef Insurance Policy - Cancun

Twin spot snapper


In June 2018, the world's first insurance policy to protect a marine ecosystem was issued by global insurance corporation Swiss Re. The "parametric" policy, whose payout is triggered by specific and pre-agreed to wind velocities or rainfall amounts as opposed to specific damages, protected 100 miles of reef and beach in Cancun and Puerto Morelos, Mexico.  The policy was a combined effort of the Mexican state of Quintana Roo and The Nature Conservancy and was specifically designed to pay for storm damages to the reef. 


How was this policy administered? A Coastal Zone Management Trust was established that receives taxes collected by the tourism industry.  The Trust pays for routine maintenance and restoration of reefs and beaches in the Cancún areas AND is used to purchase the insurance policy. Any insurance payout is used for restoration activities that help the reef to recover from damages. The sooner the reef is repaired and begins its own self-restoration, the sooner tourists return, the sooner tourism taxes are paid back into the Trust and the cycle repeats.


In October 2020, Hurricane Delta struck the reef just off shore Cancun with 100+mph winds. The wind velocity and rainfall amount exceeded the previously agreed to parametric data that was described in the insurance policy, therefore no "subjective" damage report was needed. The wind and rain fall data was exceeded so a payout was issued. The payout was almost $800,000 and happened within days.  During the first 11 days post-Delta, specialized teams of divers working in the Puerto Morelos Reef National Park, stabilized 1200 large coral colonies that had been displaced and overturned. They also rescued and transplanted almost 9000 broken coral fragments.  By the end of December, 2000 large colonies and 12,500 coral fragments had been stabilized. 


Private insurance plus government commitment plus on-the-ground (in-the-water) rapid response equaled timely repair of critical coral reefs. The repaired reefs soon restored themselves and have continued to provide two fundamental and important attributes of the blue economy, income from tourist dollars and barrier protection to the Cancun shoreline and land mass.

Coral Reef Insurance Policy - Belize

MesoAmerican Barrier Reef


In June 2021, Willis Tower Watson announced the launch of a multinational partnership project with the Mesoamerican Reef Fund to develop and implement insurance solutions that help protect and restore the 1,000km reef system along the Caribbean coast. This Mesoamerican Reef Insurance Programme is the first multinational collaboration that will design and implement parametric insurance covering hurricane risk to the Mesoamerican Reef, the largest barrier reef in the Western Hemisphere.


The project is being co-funded and implemented by Willis Towers Watson (UK and USA) and the Mesoamerican Reef Fund (Mexico, Belize, Guatemala and Honduras) with InsuResilience Solution Fund (Germany) and AXA Climate (France) as the insurance solutions providers.

What about the coral reef along the Florida Keys?

Flat head coral


What about the Florida Keys National Marine Sanctuary? Home to the only barrier coral reef in North America, the Sanctuary protects over 3,800 square miles of coastal and ocean waters in South Florida and the Florida Keys.


The sanctuary is estimated to draw in $4.4B in annual revenue from tourists and local residents.  Additionally, the sanctuary provides 70,000 jobs for the Blue Economy of Monroe County and the Florida Keys.  Second, coral reefs act like submerged waterbreakers that deflect and diminish tidal and storm surges during hurricanes and heavy storms.  In August 2021, the US Geological Survey (USGS) calculated that restoration of the South Florida coral reef could provide more than $232M in annual flood protection benefits (reduction in property damages and associated costs of post-flood livelihood). Viewed as a 50-year infrastructure investment, the savings would approximate $14B.


Looking at the sanctuary as a "marine-based" asset comprised of these two primary components; "blue" tourism and shoreline and landmass protection, the coral reef is a major social and natural infrastructure investment well worth protecting and repairing. Fine, how then is the reef protected?


Like many property owners in the Keys, the reef is self insured. After storm damages, multiple private sector and government entities seek funds to repair and restore the reef. Because it can take weeks or months to secure these response funds, repair may no longer be feasible as corals may already have died. Response after a storm needs to be rapid, and if restoration doesn’t happen fast, it will be too late.


In other words - would you rather have your leg put into a cast the day you break it or after you have been hobbling around for a month?

How are a Blue Bond and an Insurance policy related?

Convict surgeon fish


A Blue Bond can be issued; i.e., sold, by Monroe County, the State of Florida or any private entity for that matter. For instance, a $1M Blue Bond whereby a 6% annual return is guaranteed for 20 years. Investors buy pieces, for instance $100,000, of the bond and receive 6% of $100,000 annually for 20 years whereupon their "$100,000 piece" is returned. The money received from the investors is invested exclusively in marine infrastructure. An Insurance policy can be one of the recipients of the money derived from the Blue Bond.


As in Cancun and Belize, in the Florida Keys tourism dollars fund nearly everything. If you are using tourism dollars to self-insure the reef and a storm drives away the tourist, then what?  Who or what pays to maintain the reef during that period of time of evaluating damages to the coral reef and then competing for and eventually obtaining loan or grant money to repair those damages?  Conversely, a "parametric" Insurance policy can quickly provide the money to repair and restore the reef, as well as act as a sort of a bridge loan to temporarily pay premiums until the tourism dollars return.

How is the value of the Bond and Insurance policy to be determined?

Digitizing coral reef


When you or your lender insures your house, a certified appraiser evaluates your home and provides a written report that states what your house is worth. Your insurance policy is married to that appraisal. The lender knows that their loan is supported by an investment worthy asset.  Who is certified to make similar 'investment worthy" claims about the tourist value of the coal reef or the protection the coral reef provides to the shoreline and land mass of Monroe County?


To pair a Blue Bond and a parametric Insurance policy, the issuers require objective and verifiable data. Historic parametric features are not difficult to acquire as wind and wave and rainfall data are regularly recorded by multiple weather entities ranging from townships and counties to NOAA.  But what of the dollar value savings in damages to shoreline and landmasses from the storm and wave absorbing power of the coral reef? Modeling and simulation data that replicate storms and wave action, etc., are often debated until, it has been my observation, the results are negotiated; aka the cost of premiums triumphs the cost of risk.  But not anymore.

Mapping the risk reduction benefits of coral reef conservation

Clear blue at 30'


The 2020 publication, FEMA’s Building Community Resilience with Nature-Based Solutions: A Guide for Local Officials, identifies nature-based solutions as a cost-effective approach to prevent natural hazards from becoming costly disasters. FEMA’s Hazus Program provides risk assessment tools and data for communities interested in analyzing the risk reduction benefits of nature-based solutions such as coral reefs.


Coral reefs, in particular, can substantially reduce coastal flooding and erosion by dissipating as much as 97 percent of incident wave energy. Yet, of the $500 million per year the U.S. spends on mitigating coastal hazards, most of the funds are used for the creation and maintenance of “gray infrastructure” such as seawalls and shoreline stabilization, which can have negative impacts on coastal eco systems and may not be as cost effective for risk reduction when compared to natural mitigation.


The merging of nature-based modeling from experts such as USGS and the University of California Santa Cruz with insurance industry modeling experts such as RMS and Willis Towers Watson will create “investment worthy” risk profiles that value the role of coral reefs in coastal hazard risk reduction and can be used to finance the protection of Blue Economy. This merging process is well under way.


Monetize the reef through private investment

National Marine Sanctuary coral nursery


Natural capital such as a coral reef is both a public and a private good, and preserving it often warrants, or even requires, the coupling of public and private investment. Merging the cultures of public investment for a societal good and private investment for a sustainable return on that investment, benefits all parties on both sides of the ledger.


Such a merger for investing in coral reefs is well beyond the proof of concept.  Lenders, investers, insurers, laborers and the public have all benefitted from the projects mentioned herein.


And so, who will be the driving force to transition the coral reef along the southern coastline of the Florida Keys from "beautiful to swim and float in" to a mercantile event whose limitless goal is the historic preservation of natural infrastruture?


Many thanks for helping me to write this article to:

  • Sarah Fangman, Superintendent of the National Marine Sanctuary.
  • Juli Berwald, PhD, Ocean scientist and author, including Life on the Rocks
  • Michael Beck, PhD, AXA Chair in Coastal Resilience, University of California Santa Cruz
  • Aaron Koch, Principal and Consulting Actuary, Milliman


If you have any comments or questions, please contact me here.


Good luck.


Restoring 7 reef sites in the Sanctuary


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