Protection Money

The Mexican government and insurance company Swiss Re have joined force to create an insurance policy for the coral reef off the coast of Cancun. This marks the first time something like this has happened, despite years of debate on the issue.

The plan is for hotels and tourists resorts to pay insurance premiums to the company Swiss Re, who will then pay out in the event of reef damage due to storms, shipping accidents and climate related damage. The premiums will likely be a combined total of a minimum of one million dollars per year, with expected pay-outs being in the region of twenty-five to fifty million dollars.


It is an interesting plan, after all there would be far less tourism if there was no reef. No picturesque scenery, no colourful fish and no diving or snorkelling. It is clearly to the benefit of the companies in that region to preserve the reef. Many hotels are signing up to the scheme and will create a fund that pays the premiums. It is quite clever really, the hotels and resorts are protected by the reef, minimising storm damage. Losing the reef would likely mean huge amounts of damage from storms.  Keeping the reef and preserving it means protection, lower building insurance costs and, over time, a reduction in reef insurance premiums. Not all business pay the same premiums either and whilst it has not been announced you would imagine the larger businesses will pay more as they may own more of the coastline. The larger businesses are likely to be more powerful and may be more willing to protect the reef given the money they have put into it. It also creates a “Neighbourhood watch” culture will all business knowing that if another damages they reef they will all be hit with higher premiums. With everyone watching and lots of money at stake there will be far more objection to any hazardous marine plans and far greater likelihood of prosecution for any misdemeanours.

The main issue I can see however is what is stopping a business not paying the premium? If all the hotels and resorts pay it except one then that one still receives all the benefits but with none of the cost. The scheme is backed by the Mexican government and so there may be subsidies on offer but that is not yet clear. Also, who gets to decide who fixes the reef and how that is done? There will be a lot of legal work to be done and precedents to be set but none of the obstacles are insurmountable.


The scheme is very practical and likely be to be rolled out worldwide eventually. Insurers are set to do very well out of this and it adds a financial incentive to protect the environment. Putting a cost on the environment is often seen as controversial but in many cases it is the only way to make businesses or governments actually care.  The Nature Conservancy, who helped create the scheme say that every metre of reef loss results in triple the amount of damage due to a storm. If the damage is as quantifiable as they believe then calculating an insurance premium is a relatively straightforward exercise. Swiss Re, the insurer have said ““Instead of taxpayers and citizens absorbing the cost of all kinds of natural disasters, including climate events, figure out a way to quantify the risk and then push it out into the private market.” If the idea works then you can expect the competition between insurance companies to increase as they push the idea as much as they can. After all, if they are making money out of it, why wouldn’t they do it elsewhere?

Insurers are set to be one of the biggest loser’s due to climate change and would have to pay billions out to clients who lose homes and land due to sea level rise and storm damage. As the Two Ronnie’s sketch goes:

“The principle of insurance is that you, the client, pay us, the insurer, lots of money…… and that’s it.”

This scheme means that insurers will not only be insuring the property, they will be profiting from clients insuring the things, such as reefs, which protect their property from damage. The ideal vision for them is that they receive two premiums whilst simultaneously reducing the likelihood that they will ever have to pay out on either. Privatising the environment is always a controversial move but it does seem that a scheme like this has the potential to work. The coverage is set to begin in January 2018, with many conservation and insurance groups watching closely to see how it goes.

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