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Ground breaker’ insurance for $2bn mangrove system


• Bahamas benefits most from storm surge barrier

• Insurer: This is something for World Bank take up

• Ecosystems to save nation $306m over 10 years


Tribune Business Editor

The Bahamas stands to benefit most out of all hurricane-prone Western Hemisphere nations from investing in the $2bn worth of natural storm surge protection provided by its mangrove ecosystems, it has been revealed.

A series of reports produced by The Nature Conservancy (TNC) and its partners, exploring the feasibility of creating a mangrove insurance product for this and other nations, found that The Bahamas enjoys the highest benefit-to-cost (BCR) ratio of any location in the region - including Florida and Mexico - when it comes to funding the preservation and post-storm restoration of these ecosystems.

The Bahamas’ BCR ratio was pegged at 1.52, higher than both Mexico (1.47) and Florida (0.36). A BCR higher than one, according to the study, means that the benefits from financing mangrove placement and restoration significantly outweigh the costs involved given the natural barriers they provide to protect housing, businesses and other key coastal infrastructure from the worst effects of storm surge and flooding during a major hurricane.

The reports also assessed whether there was sufficient interest in, and appetite for, the structuring and development of a mangrove insurance product that would finance the upkeep and restoration of key ecosystems in The Bahamas. The TNC said it they assessed the feasibility of a “first-of its-kind mangrove insurance policy that can be groundbreaking for coastal protection in The Bahamas”, although it conceded that much more work is required to make this a reality.

Anton Saunders, RoyalStar Assurance’s managing director, yesterday told Tribune Business that creating such a mangrove insurance policy was something best left to the likes of the World Bank and international reinsurers to develop rather than Bahamian property and casualty insurers such as his own.

Confirming that he had read The Nature Conservancy’s reports, he added that he did not possess enough “technical knowledge” about mangroves and the associated hurricane risks to devise a solution. “That is something that the World Bank and reinsurers would have to take up,” Mr Saunders said.

“It’s great that it helps us with hurricanes and the restoration of those things, but I’m not technical enough - and I don’t think anyone in The Bahamas is technical enough - to come up with an insurance solution. Everything is risk and reward. I’m not going to insure something unless I know it can technically be insured and what is the risk analysis for these things.

“I’m not technical enough to come up with a solution as to how to do it. It’s a concept. We all know they help in reducing storm surge along the coast, but how do you plant more and how do you plant. I’ll wait for the experts to tell me what the best solution is.’

The Nature Conservancy reports suggested that The Bahamas could model any mangrove insurance policy, and especially how they were financed and who paid for them, on the existing reef insurance policy in Quintana Roo, Mexico. There, the insured is a trust fund financed by contributions from local governments, donors, private coastal property owners and other investments.

“Our results show that mangroves provide over $2bn in flood protection benefits in The Bahamas with a country-level BCR above one,” one of the reports said, zeroing in on two areas - the northern Port area of Freeport, Grand Bahama, and The Marls in central Abaco.

Asserting that these two areas, combined, account for 15 percent of Bahamian gross domestic product (GDP), the reports identified them as “primary focal areas for a potential mangrove insurance policy”. In Grand Bahama, these ecosystems were said to provide natural flood and storm surge defences for residential and industrial areas, and Grand Bahama International Airport, with Marsh Harbour’s airport among the Abaco-based assets that are protected.

“In Grand Bahama, mangroves provide over $900m in flood protection benefits. In Abaco, mangroves provide over $26m in flood protection benefits,” The Nature Conservancy reports said. “Both islands are home to large areas of mangroves, including mangroves that are adjacent to key public infrastructure, such as airports.

“Both also intersect with potential blue carbon sites, and stakeholders expressed interest in understanding whether and how mangrove insurance and blue carbon payments might be pursued jointly. Grand Bahama and Abaco Islands are two of the islands in The Bahamas that are most frequently impacted by hurricanes. In 2019, Hurricane Dorian caused significant damage to mangroves on both islands, and an estimated $1m over the next five years is still needed to complete restoration of the damaged areas.”

Who pay for mangrove insurance, and how much, remain key questions to be answered. A self-insurance or captive solution are among the potential options, while the Government will almost inevitably have to be involved given that many mangroves sit in Crown Land that it controls. However, The Nature Conservancy reports suggested that The Bahamas Protected Areas Fund provides a potential mechanism or vehicle for financing mangrove insurance.

“The Bahamas Protected Areas Fund - a national conservation trust fund established in 2014, with a mandate to provide sustainable financing for protected areas management and biodiversity conservation, among other things - could likely fund an insurance premium,” the reports said.

“With modest changes to its structure and governance, the trust fund could also serve as the hub for all activities related to mangrove insurance, similar to the trust fund in Quintana Roo, Mexico. While Bahamian insurance law does not explicitly address insurable interest related to property policies, the common principle requiring an economic interest will likely apply since Bahamian law tends to follow English common law.

“In nearly all of the conversations with stakeholders, the primary concerns were how much an insurance policy would cost, who or which entity would pay for it, and/or how funds could be secured to pay for it. Identifying ways to fund the purchase of the insurance premium is critical,” The Nature Conservancy reports continued.

“With the work that we have done to date, we are optimistic about the potential for establishing mangrove insurance policies to fund restoration of mangroves damaged by hurricanes. While this phase of work focused on the feasibility of a mangrove insurance policy in specific locations, the next phase of work will focus on how to design the insurance scheme and manage the payouts to ensure the appropriate restoration work takes place.”

The reports used discount rates of 4 percent and 7 percent, respectively, to establish the present value of mangroves to The Bahamas and other locations over a 30-year lifespan. They projected that, without mangroves to guard against hurricane-related storm surge and flooding, The Bahamas would suffer some $729m worth of damage over a ten-year period.

However, with fully intact mangrove ecosystems, these damages would be reduced by $306m or 42 percent over the same ten-year period to $423m. And, over a 100-year span, the reports forecast that mangroves could reduce the storm surge-related damages suffered by The Bahamas by $4.3bn or 31 percent - dropping them from $13.871bn to $9.565bn.

Using the 4 percent discount rate, the reports said: “The total Present Value of mangroves across the Caribbean is $25.17bn. The top five regions in terms of present value of mangroves for flood protection are Mexico ($6.26bn), Florida ($13.1bn), The Bahamas ($2.29bn), Cuba ($1.24bn), and Guatemala ($0.42bn).

“Among the three focal areas, The Bahamas presents the highest mean present value per hectare ($54,570) followed by Florida ($34,680) and Mexico ($6,659)..... At a discount rate of 7 percent, the mean 30-year present value per hectare of mangroves across the wider Caribbean in five kilometre study units was $5,877 per hectare.

“Among the three focal areas, The Bahamas presents the highest mean present value per hectare ($39,625), followed by Florida ($25,183) and Mexico ($4,835). The total present value of mangroves across the Caribbean is $18.28bn. The top five regions are Florida ($9.5bn), Mexico ($4.55bn), The Bahamas ($1.66bn), Cuba ($0.9bn), and Guatemala ($0.31bn).”

The studies estimated that some 21,027 persons on an annual basis enjoy protection from Bahamas-based mangrove ecosystems. And, for Nassau, Grand Bahama and Andros, the benefit-to-cost (BCR) from their maintenance and upkeep soars to five. However, The Bahamas’ mangroves were shown to be the most vulnerable to loss and damage in hurricanes, with 6.8 percent facing such a fate annually.

“In The Bahamas, all the islands have more than 4 percent of expected losses. The highest damage is expected to happen in Exuma and Long Island (7.9 percent), followed by Crooked Island (7.8 percent). The island of New Providence where the capital, Nassau, is located had 7.2 percent annual expected mangrove loss,” The Nature Conservancy reports found.

Using the 4 percent discount model, the studies said: “We assume a median restoration cost of $4,538 per hectare in Mexico, $54,653 per hectare in western Florida, $118,524 per hectare for projects in eastern Florida, and $35,955 per hectare across The Bahamas.”

At a 7 percent discount: “We assume a restoration cost of $4,538 per hectare in Mexico, $54,653 per hectare in Western Florida, $118,532 per hectare for projects in Eastern Florida, and $39,599 per hectare across The Bahamas


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