Floods have caused significant losses in the past year – in Europe, Asia and more recently, in Australia, where I live. Extreme weather, overflowing rivers and dams, poor drainage and urbanization, have all led to increased property damage, lives lost and economic disruption. It was only this time last year I was writing about floods in Australia and the role of nature-based solutions to build resilience and support adaptation. Those floods were referred to as a “one-in-a-100-year event”, but here we are again, a year later, having similar devastating experiences.
When we think about recovery and long-term resilience, we also need to think about how to ‘build back better’. We need to build smarter, safer and greener, acknowledging that climate change is causing weather events that are no longer ‘unprecedented’ and are happening much more frequently. This requires concerted efforts from policymakers, the re/insurance industry and communities at large.
Our speed of growth has come at a cost
There are now more than 7 billion humans inhabiting the earth, and by 2050, this is forecast to rise to more than 9 billion people. While this population growth has significantly improved our standard of living and connections, it has increased urbanization, consumption and energy generation – resulting in a world that is more susceptible to disaster damages and nature is at risk.
Growing cities have reduced the ground’s ability to absorb water, while, ‘soil-sealing’ has been found to be a significant contributor to flood-related losses, especially when combined with ineffective storm water infrastructure. This is backed up by the latest research from the Swiss Re Institute.
Nature is also impacted as our cities spread and grow. More than half the world’s GDP (USD 44 trillion) depends on nature and its services. Nature provides for agriculture, tourism and recreation. It delivers clean air and water, and protects communities and properties from excessive heat, flood risk, and storm surge. Without action, by 2030, the World Economic Forum estimates nature loss could cost 2.3% of global GDP (USD 2.7 trillion) annually and poorer countries would be hit the hardest.
Natural catastrophe losses continue to take up the majority of all economic losses
Climate change is driving an increase in the frequency and severity of extreme weather events, raising the losses. USD 270 billion – 96% of the total economic losses from natural and man-made disasters in 2021 – could be attributed to natural catastrophes and weather-related events.
Floods affect more people around the world than any other peril. Of the 50 severe floods in 2021, the impacts reflect the different level of insurance protection and investment in climate resilience:
The July 2021 European floods cost USD 41 billion in total economic losses and resulted in 227 fatalities. Insurance covered USD 13 billion of the total bill, reflecting a protection gap of 68%.
In contrast, seasonal flooding in India over 2021 resulted in USD 2.3 billion in total economic losses and 729 fatalities – none of the economic losses were covered by insurance – demonstrating the differences in financial protection mechanisms in different parts of the world.
Strengthening climate resilience in Asia through public-private partnerships (PPP)
Asia has historically suffered the highest flood-related economic losses but has lagged in terms of insured losses. This was still the case in 2021, where insurance covered only 11% of flood-related economic losses. However, in Europe and North America, insurance covered an average of 34%.
Public-private partnerships are the key to countering such severe community losses and narrowing the large protection gap in the region. For instance, Swiss Re has provided reinsurance capacity to the Thai national rice insurance scheme since 2011. This scheme now includes other crops and protection for more than 2 million people, with swift financial relief if the crop is damaged before harvest. Between 2015-2018, around USD 40m in total was paid out in claims, however, following devastating floods in 2019 the payout that year alone was USD 50m, providing stability to the local economy.
The Indonesian public asset insurance scheme is another great example of where governments and re/insurers can work together to build climate resilience and assure economic continuity. Swiss Re is the lead reinsurer behind the insurer consortium, covering more than 80 Indonesian Ministries / Government Agencies and their assets against floods, earthquake and other perils.
Implementing national programs such as these require strong government foresight and leadership, and Swiss Re’s Public Sector Solutions team partners with government to help reduce the protection gap and increase accessibility to innovative insurance solutions. This includes raising awareness of the benefits of climate-smart approaches, such as the green/grey canal restoration project in Kerala, India. Supported by the Swiss Re Foundation, this initiative will test and de-risk nature-based solutions such as mangroves and porous surfaces for a range of benefits, including greater protection against flood risk, improved water quality, and mitigation of urban heat.
Building back better – nature-positive and resilient actions for a stronger economy
Recovering from natural disasters provides societies and governments the opportunity to ‘build back better’. This means rebuilding cities and infrastructure that is more resilient, decarbonised and nature positive. The assessment of public assets must also take into account the value of natural assets, in terms of both revenue and resilience value – for example, coral reefs provide an estimated USD 36 billion in tourism-related revenue, but deliver more than seven times that value in resilience and protection benefits. Without functioning coral reefs, global storm damage could result in USD 272 billion total economic losses.
This approach is not just about delivering environmental benefits, but also economic growth and sustainability. Examples of positive actions that can be taken now are outlined in the white paper ‘Scaling Investments in Nature: The Next Critical Frontier for Private Sector Leadership’.
‘Building back better’ does make economic sense, and it creates homes, workplaces, services and communities that are safer, more accessible and enjoyable.