Quantifying the Flood Risk Reduction of Coastal Nature‐Based Solutions in the Caribbean: Implications for Developing Insurance Products

ABSTRACT Tourist‐related businesses, which are key to the economies of many small island states in the Caribbean, are often vulnerable to coastal flooding. Nature‐based solutions, such as coral reefs and mangroves, can help to reduce their coastal flood risk. There has been a dearth of work accurately quantifying the risk‐reduction benefits for mangroves and reefs in the Caribbean and what the implications are for developing insurance products. This paper describes the modelling to estimate the expected annual damage (EAD) for buildings in the Caribbean with and without coastal nature‐based solutions in place. Reefs and mangroves have the potential to reduce the EAD. However, in the case of reefs, this effectiveness is related to their health, with unhealthy ones increasing EAD in some cases. One of the limiting factors to developing traditional indemnity insurance products, which take into account coastal nature‐based solutions in the Caribbean, is the accurate quantification of the reductions they have on the EAD. However, to develop indemnity insurance products which take account of reefs and mangroves would require significant updates to existing catastrophe models which are used by the insurance industry, as well as tailoring them for specific locations. Parametric insurance products offer a potential mechanism for restoring damaged reefs and mangroves; however, further research is needed to better align payout triggers with the actual damage these ecosystems sustain.