Financing coastal resilience by combining nature-based risk reduction with insurance
| Ecological Economics | 2020 | Peer Reviewed | Original research | https://doi.org/10.1016/j.ecolecon.2019.106487Abstract
The increasing impacts of climate hazards combined with the loss of coastal habitats require urgent solutions to manage risk. Storm losses continue to grow and much of them are uninsured. These losses represent an increasing burden to individuals, businesses, and can jeopardize national development goals. Pre-hazard mitigation is cost effective, but both the public and private sector struggle to finance up-front investments in it. This article explores a resilience solution that combines risk transfer (e.g., insurance) with risk reduction (e.g., hazard mitigation), which have often been treated as two separate mechanisms for disaster risk management. The combined mechanism could help align environmental and risk management goals and create opportunities for public and private investment in nature-based projects. We assessed this resilience insurance with hypothetical cases for coral reef restoration. Under conservative assumptions, 44% of the initial reef restoration costs would be covered just by insurance premium reductions in the first 5 years, with benefits amounting >6 times the total costs over 25 years. We also test the sensitivity to key factors such as project cost, risk reduction potential, insurance structure, economic exposure and discount rates. The resilience insurance mechanism is applicable to many coastlines and can help finance nature-based adaptation.