Coral Reef Insurance Development Opportunities in Indonesia

Being one of the world's Coral Triangle areas, the area of coral reefs in Indonesia reaches 2.5 million hectares out of around 325 million hectares of territorial waters. Coral reefs are home to marine biodiversity, an important economic resource, as well as natural protection for coastal communities from storms, waves and erosion. These functions can be lost if coral reefs are damaged by natural disasters and no quick recovery efforts are made. Availability of funding is one of the main factors to deal with this situation. To that end, Yayasan Konservasi Alam Nusantara (YKAN) held a webinar “Coral Reef Recovery Insurance Opportunities” on (2/9/2021) hosted by Raja Siregar, a practitioner of climate change adaptation and disaster risk reduction.

"Of the total area of coral reefs in Indonesia, 1.1 million hectares of coral reefs are located in conservation areas and the rest are outside conservation areas. If coral reefs are damaged, it will also threaten the sustainability of life on earth. So we need to think about mechanisms to support the sustainability of coral reefs,” said the Director of Marine Conservation and Biodiversity of the Ministry of Marine Affairs and Fisheries Andi Rusandi.

One of the quick sources of funding for the repair of damaged coral reefs is through insurance. “This idea began to surface when the Minister of Finance, Sri Mulyani Indrawati, in 2018 conveyed the Indonesian Government's desire to provide coral reef insurance. This is certainly very relevant, because insurance is expected to provide funds quickly if coral reefs are damaged, especially due to disasters. Coral reefs damaged by the disaster need to be repaired as soon as possible. Because if it is allowed to drag on, repairs will be more difficult,” explained YKAN's Director of Marine Programs, Muhammad Ilman.

Ilman added, to support the government's efforts, since early 2021 YKAN together with Smart Anticipation of Disaster Risk (CARI!), School of Business and Management - Bandung Institute of Technology (SBM-ITB) and several other partners conducted studies on coral reef insurance opportunities in Indonesia.

“We conducted this study in 7 regions in Indonesia, namely Pandeglang Regency, Makassar City, Klungkung Regency, Wakatobi Regency, Berau Regency, Raja Ampat Regency, and Rote Ndao Regency, by adopting the Blue Guide approach. From this research, we found that in the period 2000-2020, in the 7 regions there were 1,523 natural disasters such as floods, earthquakes, tsunamis, cyclones, landslides, and others that damaged coral reefs. In addition, there were also 123 anthropogenic disasters in the 7 areas that damaged coral reefs," said disaster practitioner Mizan Bustanul Bisri from CARI!.

Repair of coral reefs damaged by disasters needs to be supported by sustainable funding mechanisms. "A more feasible financial and financing or insurance mechanism for coral reef restoration in Indonesia is to use a trust fund management scheme or Public Service Agency because it is already supported by existing legal and regulatory provisions," explained SMB-ITB academic Barli Suryanta.

Barli's explanation was strengthened by the Policy Analyst at the Fiscal Policy Agency of the Ministry of Finance, Dewa Ekayana. “Who should pay the premium for this coral reef insurance? Can be paid by the state, as the beneficiary. For this reason, it is necessary to carry out an inventory and economic valuation of coral reefs as state assets, to find out how much the state will lose if there is a disaster on coral reefs," said Dewa.

Coral reef insurance methods also have options. “Regarding insurance, there are options for its implementation. For example, indemnity-based or loss-based. We can use a policy that applies whatever the loss will be replaced. Or use a parametric application, where the size of the claim is paid based on certain criteria. Of course this is related to risk assessment. For this reason, parties with an interest in reef sustainability must analyze whether in their application they will use indemnity-based insurance or will use parametric, so that this choice is the best and appropriate," explained OJK's Director of Institutional and Non-Bank Financial Industry Products Asep Iskandar.

On this occasion, Fernando Secaira from The Nature Conservancy Mexico was also present who delivered lessons on the development of coral reef insurance at Quintana Roo. Mexico was the first country in the world to issue an insurance policy to protect coral reefs. “The government of the state of Quintana Roo, Mexico, established the Coral Reef Brigade and established the Coastal Zone Management Trust (CZMT) in 2018. CZMT purchased parametric insurance for coral reefs to finance recovery after hurricanes hit. The first US$800,000 coral reef insurance claim was made in 2020 after Hurricane Delta. Meanwhile, the Coral Reef Brigade represents highly qualified and organized community members who are trained and equipped with technical skills to repair coral reefs after a disaster occurs,” concluded Fernando.