When Nature Gets An Insurance Policy

A coral reef off the Mexican coast will soon be underwritten by Swiss Re.

- Christopher Flavelle

In the waters off Mexico’s Caribbean coast, an insurance giant is about to test a new line of business, one designed to outperform governments in preparing for climate change—and create a fresh source of revenue.

Swiss Re AG is preparing a policy for a stretch of the Mesoamerican Reef. It may be the first time an insurer has covered a natural structure. The actual policyholders will be the beachfront hotels protected by that reef. So far, maintaining the reef has fallen to the Mexican government, funded by tax dollars. Swiss Re says its plan will give hotel owners quick payouts after a storm, which they can use to repair both their beaches and any damage to the reef itself. It will also give hotel owners an incentive to protect the reef. “What we’re developing here is theoretically game-changing,” says Alex Kaplan, senior vice president for global partnerships at Swiss Re. “I’m really hoping that this creates a new market.”

As climate change progresses, so does the risk from hurricanes, flooding, and other natural disasters. Repairing the damage caused by these events has strained government budgets. Between 2005 and 2014, for example, the U.S. spent at least $278 billion on disaster assistance. The U.S. Government Accountability Office counts climate change as one of the most significant financial risks to the federal government.