Building Japan’s resilience for a more flood-prone future

It is critical to ensure people and businesses are financially protected from the unexpected damage brought about by floods. This is an outcome that we as an insurance industry can advance on two fronts: i) enhancing flood risk understanding and risk knowledge sharing, and ii) offering innovative, risk-based and cost-effective insurance solutions. This will encourage customers to reflect potential risk landscape, and to make the right choice for risk reduction and transfer, as well as to enhance individual and societal resilience.

Floods have always been one of the key natural catastrophe threats for Japan, given the country’s exposure to heavy rainfall, and mountainous terrain, which creates rivers that can quickly turn unpredictable as they flow from steep heights to the sea. Japan receives double the global average rainfall of roughly 1,800 mm annually, with much of it concentrated during the rainy and typhoon seasons. In response, the government has invested heavily in infrastructure over the past several decades, such as levees and dams.

For many years, these mitigation measures provided reassurance. The 2019 Typhoon Hagibis, however, caused 142 rivers to burst their banks, flooding 53,000 homes.  Approximately half of the USD 8 billion insured losses caused by the event resulted from flooding, though this is far from the worst that could happen in case of a more severe scenario.

Heavily populated areas such as Tokyo, Nagoya and Osaka are susceptible to typhoon surge and flood due to aged infrastructure. The risk exposure is heightened and becomes complex as more people choose to live close to the river, or river basin areas in the past, or close to coast or reclaimed land. Further infrastructure investment and appropriate land-use planning will help mitigate the damage, but as Typhoon Hagibis showed, even the best infrastructure can buckle under the severe pressure that natural catastrophes present. Climate change is likely to increase pressure further. According to research by the Bank of Japan, flood damage is set to increase by a factor of nine by the year 2100, though the institution also notes a concerted global push to tackle climate change could mitigate this impact.

It is fundamental to have quality exposure data for assessing natural perils and developing relevant risk-based insurance solutions, more so for flood with its highly localised nature. A 100-meter location difference from a river creates potentially a large difference in susceptibility of flooding. Swiss Re has found that a traditional approach based on statistics analysis at portfolio level is not sufficient, and it could challenge re/insurers’ ability to provide sustainable flood coverage due to heightened flood risk. To ensure protection remains a viable prospect and that flood damage will continue to be insurable, localised stochastic risk models must evolve to include ongoing and anticipated environmental and societal changes, coupled with more readily available data that is accessible and accurate.

Industry modelling capabilities for flood risk at present have been less rigorous. We have faced the lack of a quality risk database which connects local flood footprints in the past, to insurance exposure and conditions, and to actual loss payments. The 2011 Thailand flood revealed that this understanding was even more challenging to determine overseas exposures, resulting in an unexpected multi-billion USD loss from highly concentrated technology facilities. The South Africa flood in May this year is another example, which underscores the need for the industry to pursue high quality and high-resolution data at a global scale.

It is promising to see Japanese insurance industry players become willing and open to record and share such datasets that can help simulate today's dynamic flood risk scenarios.  At Swiss Re, we continue to expand our CatNet® georisk platform to understand the flood risk better and raise awareness. We believe that the advancement in mapping technology coupled with more readily available datasets will help provide a firmer foundation for risk assessment, assisting insurers to assess and underwrite flood and other risks with greater certainty and accuracy.

In case of wide scale damages, efficient and faster claims processing has become a clear priority for our customers. Swiss Re has been working with our partners to develop solutions that allow us to assist our clients in estimating flood impacts and preparing for their timely claims handling, by putting real-time globe scale satellite imagery technology into action.

In 2021, there were more than 50 severe flood events around the world and that has led to a combined economic loss of more than USD 80 billion worldwide. Considering the scale of devastation, flood risk is a growing concern that deserves the same attention as primary perils worldwide.  

We may not be able to prevent these disasters entirely but by working with our partners, we will continue to invest in better data and understanding of natural catastrophes, and to steadily expand access to insurance protection that is versatile, affordable, and transparent. Along with physical infrastructure, insurance is key to ensure communities and businesses in Japan feel confident to rebuild and recover after disasters strike.