Insurance policy unveiled for Hawaii reef repair

The Nature Conservancy is expected to announce today the purchase of a novel insurance policy that will cover up to $2 million in repairs to Hawaii’s coral reefs in 2023 following damage from a hurricane or powerful tropical storm.

The policy, the first ever in the United States, follows the world’s first reef insurance policy for the coastal state of Quintana Roo in Mexico, developed in 2019 by the Nature Conservancy and partners, and another one covering the Mosoamerican Reef off southern Mexico, Belize, Guatemala and Honduras.

“The Nature Conservancy is thrilled to pilot the first coral reef insurance policy in the United States,” said Ulalia Woodside Lee, executive director of the Nature Conservancy in Hawaii and Palmyra.

While the idea of reef insurance has been discussed and studied in Hawaii over the past five years or so, the Nature Conservancy moved to develop the program after the state Senate passed a resolution in 2021 calling for a report about the possibility of reef insurance.

A 2020 Bank of America- supported feasibility study found that coral reefs in Hawaii could indeed be insured against natural disasters.

Officials with the Nature Conservancy said the time to do something like this is now as climate change is driving the potential for storms with greater destructive power.

“Every year, the threats to our natural environment feel like they are increasing, both in number and intensity,” Lee said in an interview.

“Coral reefs are just critical to our people, critical to our culture, critical to our economy,” she said. “Reefs are environmental, economic, recreational and cultural treasures and the foundation to our unique culture. They are vital to Hawaii’s security and economy, and so we need ways to best take care of this vital resource for our community.”

Reefs provide coastal flood protection, jobs estimated to be worth more than $831 million and $1.2 billion-plus to the state’s economy in reef-related tourism.

Hawaii’s reef fisheries generate $13.4 million annually, most of that providing food and income for local families.

Despite the importance of reefs to the islands, overfishing and polluted runoff have contributed to a 60% decline in live coral cover on some of Hawaii’s reefs in the past 40 years, and climate change is adding more threats in the form of coral bleaching and ocean acidification.

“There’s no shortage of threats happening to the reefs,” said Kris Billeter, a Nature Conservancy board member who has been working on the reef insurance project from the start. “Our reefs need all the help they can get.”

State officials have embraced the project as “a step forward in coral reef conservation.”

“Managing natural resources is a costly endeavor, and more investment is always needed,” Brian Nielson, administrator of the Division of Aquatic Resources, said in a news release.

Billeter said the Hawaii reef insurance plan fell in place following success in Mexico. Proceeds from the Quintana Roo policy were used to repair damage from Hurricane Delta in 2020. And the Belize policy was triggered by Hurricane Lisa just a couple of weeks ago, resulting in a payout and the rapid repair of the beach and reef, officials said.

Working with Willis Tower Watson’s Climate and Resilience Hub, the Nature Conservancy selected the insurance firm of Munich Re to issue a policy that will be triggered at wind speeds of 57 mph and proximity to Hawaii’s main reefs.

Officials said they pursued a policy tied to wind speeds rather than the more traditional approach of indemnifying against actual loss because it will allow payouts within days, expediting reef repair activities such as debris removal and coral reattachment following a disaster.

The policy, as written, focuses on three general reef areas: Oahu; the region between Molokai, Lanai and Maui; and West Hawaii.

In addition to wind speeds, the payouts will depend on proximity to the center of the three reefs, each of which are insured for $1 million with a maximum payout of $2 million. All of the reefs around the main islands, except Niihau, will receive some kind of coverage depending on proximity to the three main reef areas.

The policy will cover the 2023 hurricane season and end at the conclusion of the calendar year. Hurricane season runs from May to November.

According to the Nature Conservancy’s plan, when a hurricane or tropical storm triggers a payout, an advisory committee, in coordination with state Division of Aquatic Resources and other groups, will be activated to oversee the use and distribution of the funds and mobilize the repair work.

Officials said they plan to convene an advisory committee of scientists and reef managers in early 2023 to develop an early-warning and rapid-response protocol to guide first responders before, during and after a trigger event. The plan will outline actions to rapidly repair and restore coral reefs.

The cost of the $2 million insurance policy is roughly $100,000, which will be picked up by private funders that include the Bank of America Charitable Foundation and Howden Group Foundation, the charitable arm of international insurance agency Howden Group Holdings.

Nature Conservancy officials said they hope the insurance program can be continued into the future, either by the state, the private sector or a combination of both.

“We hope that it can be extended. We do really think this is an opportunity for Hawaii,” Lee said.

“It’s very exciting for Hawaii to be leading in this regard,” Billeter added. “I think anything we can do to protect our natural resources is a great thing. So I’m excited to see how this goes and what we learn, and I hope it really makes a significant dent in protecting our reefs from major storm impact.”