Risk of floods underestimated despite related losses doubling in last decade: Swiss Re

Despite floods having more economic impact than any other natural catastrophe, their impact continues to be underestimated, Swiss Re reports.

In its latest report, Flood – an underestimated risk: Inspect, inform, insure, Swiss Re notes that insured flood losses have increased from between US$1 billion and US$2 billion in 1970, to US$15 billion in 2011. Costs of floods have more than doubled in the last decade.

Following major losses in Thailand, Swiss Re also identified “hot spots,” or clusters of globally relevant industries, such as manufacturing centres, where flood damage would create a major local and international impact.

“The existence of such hot spots has increased the emphasis on risk modelling and underwriting tools. 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,” says Jens Mehlhorn, head of flood at Swiss Re and the key author of the report.

With more people moving from rural areas to urban centres, population growth, the greater density of assets in exposed areas, and climate change, the costs of flood damage are increasing. Floods can range from flash floods to river floods to torrential rainfalls and tsunamis, among others.

Thailand alone saw US$12 billion in insured losses in 2011. “The insured losses corresponded to 1,800% of the country’s total annual property premium — and this emphasizes the difficulties the industry faces in creating an economically viable approach to flood insurance,” Mehlhorn says.

Flood damage rivals earthquakes and hurricanes, in terms of economic losses, Swiss Re suggests. Still, awareness of flood risks and their impact remains relatively low, despite an estimated 500 million people being affected every year.

The challenge of building a sufficiently large risk community of policyholders outside of just the highest-risk areas has made flood insurance less economically viable. The industry must work with government as well to improve insurability of floods, Swiss Re adds.