Flood costs doubled in last decade
The cost of floods worldwide has more than doubled over the last ten years and now rivals earthquake losses. Thats according to a new report by the worlds second-largest reinsurer.
The Swiss Re report titled Flood — an underestimated risk: Inspect, inform, insure, says insured losses from floods are increasing at an alarming rate, but the insurability of floods provides unique challenges for the industry.
Everyone who lives close to a river generally knows of the risk from flooding. However, flood risk is not obvious everywhere, the report states. Every year we witness floods in areas where hardly anyone was expecting them.
With an estimated 500 million people affected each year, the report says no other natural disaster impacts as many people as flooding.
In 1970, flood losses were between one and two billion dollars, whereas flood claims amounted to $15 billion in 2011.
The economic cost of last years floods in Thailand has reached $45.7 billion, according to the World Bank. For insurance and reinsurance companies, the total claims tally — much of it from business interruption and contingent business interruption — came to an estimated $12 billion, according to figures in the Swiss Re report — with the Lloyds of London insurance market alone taking a $2.2 billion hit, the third-biggest loss in its 324-year history.
Australia ordered a review into disaster insurance and the need for a national disaster fund after cyclones and floods in Queensland in March 2011 left the country with a clean-up bill of around $10.5 billion.
The events of 2011 have shown that floods are now rivalling earthquakes and hurricanes in terms of economic losses. The report says climate change, population growth and demographic changes are all contributing to the increasing costs in flood damage.
For example, for the first time in human history more people live in urban centres than in rural areas. Many of these cities are located on the coast or adjacent to rivers and are threatened by floods and storms. Climate change is likely to increase the risks, the report says.
The rising costs of floods are creating challenges for the insurance industry and the economic viability of flood insurance is currently an issue under scrutiny.
2011s $12 billion insured losses in Thailand really highlighted the potential for flood to cause extreme losses. The insured losses corresponded to 1,800 percent of the countrys total annual property premium, said Jens Mehlhorn, head of flood at Swiss Re. This emphasises the difficulties the industry faces in creating an economically viable approach to flood insurance.
One of the most important lessons learned from the Thai floods, the report found, ws the identification of hot spots — or clusters of globally relevant industries in flood prone regions. These areas can cause extreme losses because claims are not only incurred locally, but through interruptions to supply-chains and decreased manufacturing productivity internationally.
The existence of such hot spots has increased the emphasis on risk modelling and underwriting tools, Mr Mehlhorn said. It is crucial to get the information necessary to know where risk clusters have developed and how significant a flood event would be in those areas.
At the centre of the flood report is an investigation into ways of building adequate insurance populations to share the risk of flooding and how insurers can play a role in advising on risk-minimisation strategies such as flood-walls and urban planning.
Swiss Re is also launching a flood app for iPads which is available in the iTunes app store. The app provides rich interactive content around the issue of flood risks and flood insurability. It also offers an interactive tool to examine the hot spot risk of 50 major metropolitan areas around the world.
Take Our Poll
- "Who is the greatest basketball player of all time?"
- Kareem Abdul-Jabbar
- Larry Bird
- Wilt Chamberlain
- LeBron James
- Earvin 'Magic' Johnson
- Michael Jordan
- Bill Russell
- Total Votes: 6080
- Poll Archive