Natural catastrophes in focus: Floods

Flooding affects more people around the world than any other peril. Around 29% of the world’s population is exposed to flood risk.

Swiss Re Institute records show that flood events caused more than a third of natural-catastrophe related fatalities since 2011, and that flood is by far the most frequently occurring of all natural perils. For example, over the past 15 years, there have been three times as many large loss-causing flood events as there were tropical cyclones, and 1.2 times as many floods as severe convective storms (SCS). The devastation wreaked by floods is reflected by the associated economic losses, which are consistently among the highest of all perils each year, alongside those from tropical cyclones and earthquakes.

Losses from floods have been on an upward trend globally, rising at a significantly faster pace than global GDP. Over the last 30 years, flood events have caused cumulative global economic losses of more than USD 1.2 trillion. In the decade through 2022, cumulative insured losses from flood events around the world of more than USD 88 billion (adjusted to USD 2023) were more than 30% higher than insured flood losses during the previous decade.

Ever-expanding urban areas driven by population growth and migration, together with industrialisation, also results in impervious surfaces covered in concrete or asphalt, leaving less area to absorb water. Similarly, destruction of water-absorbing wetlands is also likely to exacerbate flood risk. Both have the potential to contribute to more extreme and costly flooding, especially from heavier rains that scientists say are likely to accompany a changing climate.

For local governments, these factors point to the necessity of properly managing urban growth, pairing such strategies with the preservation of natural flood defenses as well as the addition of well-designed adaptive infrastructure capable of accommodating increased runoff from heavier rainfall. Individuals, businesses and governments in flood-prone areas must also make contingency plans in advance of flooding to reduce loss of life, injuries and property damage, as well as to rebound quickly after a flood event.

As many of the impacts from flooding cannot be mitigated, it’s important that property owners and businesses understand the terms and conditions of their standard insurance policies, to ensure they have adequate coverage to repair damage and protect loss of income after a flood. In this way, they can protect against potential for a financial crisis to occur, on top of the traumatic consequences that floods often cause for people and the communities they impact.

Flood insurance in some countries has often been seen as the domain of government programmes, in part due to the potential cost associated with this peril and the difficulty of modeling it. However, the insurance industry, including the growing private flood insurance market, has an increasingly important role to play in supporting societal resilience in the face of an evolving flood risk landscape.

For many years, flood was considered an uninsurable risk as a result of the complexity to effectively model, underwrite and price it. This left private insurers reluctant to offer coverage. However, risk assessment capabilities in the industry have advanced significantly in the past decade. The task is to make use of these newly developed risk assessment techniques for flood, employing the same rigor that is already applied to other dominant perils like hurricane or earthquake risk.

Swiss Re research shows that rising flood risk is particularly linked to climate change, urbanisation and other human impacts to our environment. Given this, particular attention must be paid to flood risk's dynamic components as we seek to increase risk model usage and accuracy. It is also essential for the industry to explicitly capture and share flood-specific exposure and policy information. Flood risk is complex, but it is also generally insurable. Understanding its risks allows re/insurers to help make society more resilient.