Locations
Coral Reef Insurance
Strengthening Coastal Resilience through Coral Reef Insurance in Indonesia
Background
Coral reef ecosystems support the livelihoods of millions of people across Indonesia, contributing US$3 billion annually to the country’s economy. Reefs also protect coastlines from erosion and storm surges, saving lives as well as livelihoods among those who live and work in Indonesia’s coastal areas.
But as the climate crisis worsens and natural disasters increase, Indonesia’s coral reefs are under threat. Rising sea surface temperatures are causing massive coral bleaching, decimating coral reefs. Protection is urgently needed to restore ecosystems, safeguard biodiversity and build financial resilience among Indonesia’s coastal communities.
UNDP, in cooperation with global insurer Swiss Re, the Ocean Risk and Resilience Action Alliance (ORRAA) and the Government of Indonesia, is implementing a parametric insurance project in the Gili Islands to provide rapid recovery funds when sea surface temperatures rise and disaster hits. This programme represents the first time parametric insurance has ever been used to protect coral reefs against sea surface temperature rise.
What is parametric insurance?
Parametric insurance, also called index-based insurance, is a type of insurance that pays out a pre-agreed amount automatically when a defined trigger event occurs. The trigger is created using an objective, accessible, clear data trigger – for example, rainfall exceeding a set threshold, wind speed reaching a set level, or sea surface temperature hitting a set intensity.
In traditional indemnity insurance, claims have to be assessed to determine the actual financial loss suffered. But parametric insurance pays out when the trigger is hit, no matter what the actual loss was. This means the payout can be faster – a crucial element in disaster response, where speed and flexibility are essential.
Voices of the Parametric Pilot
To make sure the programme met the needs of everyone who depends on Indonesia’s coral reefs, the Gili Island pilot programme was co-designed with community members, stakeholders from the Indonesian Ministry of Marine Affairs and Fisheries, the local Marine Park Authority and global insurer Swiss Re. Hear from some of our stakeholders here.
The Project in Numbers
Project Stages
To get the project under way, UNDP supported the Indonesian Ministry of Marine Affairs and Fisheries in preparing and issuing a regulation creating a legal basis for insurance to be used as part of risk management for coastal resilience. The regulation established the Blue Window Trust – a key governance mechanism for financing coral reef protection in the Gili Islands.
UNDP and Swiss Re collaborated with the Ministry of Marine Affairs and Fisheries and the local Marine Park Authority for the Gili Islands to determine the biggest risk to coral reefs in the region. Sea surface temperature was identified as the main threat to reef health, and parametric insurance was agreed to be the best mechanism to address the risk.
A parametric insurance product was designed using as a trigger the sea surface temperature alert levels provided by the US National Oceanic and Atmospheric Administration (NOAA). Funds can be released at two levels, depending on the severity of the event. When sea surface temperature hits Alert Level 1, a payout is released to fund coastal restoration activity, such as clean-up, repair and reef health monitoring. When sea surface temperature reaches Alert Level 2, a larger payout provides financial compensation for local businesses who need to pause operations so the reef can recover.
Local community groups were included throughout all phases of the project, and this phase focused on gaining validation for the solution by consulting those who best understand the stakes – the communities most affected by reef degradation. Workshops, consultation sessions, presentations and discussions built shared ownership of the project and ensured the solution fit in with existing initiatives and expertise.
The pilot aims to create a self-sustaining model, using diverse finance sources to build long-term stability and reduce dependence on philanthropic funds. Catalytic funding from ORRAA has been used alongside government funding in the Blue Window Trust to get the solution under way. And local communities have identified further local opportunities to collect funds from visitors to enable sustainable reef management. The next step is to put coverage in place, and help ensure that coastal communities have the resources they need to protect Indonesia’s essential reef ecosystems.
Our Donors and Partners
Contact
For further information about the Strengthening Coastal Resilience through Coral Reef Insurance in Indonesia project, contact achmad.nasution@undp.org.