This week, the Insurance Council of Australia (ICA) called the widespread flooding that struck the east coast during March and April “Australia’s costliest flood ever.” The ICA currently estimates insured losses to be nearly $3.5 billion.
One main message from Swiss Re’s recently released Natural Catastrophe Sigma 2022 report is the rising threat of floods. According to Natural catastrophes in 2021: the flood gates are open, last year floods accounted for nearly one third of global economic losses from natural catastrophes, just below tropical cyclones.
However, alarmingly, last year’s total insured losses across Asia, including Australia, amounted to $4.3 billion, a sum that looks ominously close to the flood claims costs Australia alone has already reached in the first months of 2022.
“In 2021, large flood events claimed more than 2,500 lives across more than 50 severe floods globally, including an increasing number of flash floods in urban environments,” said Sydney-based David Sinai (pictured), head of property underwriting ANZ for Swiss Re.
Europe suffered the highest losses from flooding, said Sinai, with insured losses amounting to $18.5 billion.
“In Asia, many countries, including China, Australia, Malaysia and India, suffered devasting floods with economic losses estimated at $43 billion and insured losses estimated at $4.3 billion,” he said.
One big flood issue across the Asia-Pacific, including in Australia, said Sinai, is the large flood protection gap. This issue is very evident in China.
“In 2021, China had the most severe economic loss of $33 billion with associated insured losses of just $3.3 billion, again indicative of a large flood protection gap,” said Sinai.
Climate change is one of several main causes of this increasing risk from flooding, including changes in land use.
“Urbanisation and more hard surfaces lead to rapid run-off, faster catchment response times and flash flooding in urban environments,” said Sinai.
The Swiss Re head said urbanization combined with climate change fuelled increases in rainfall intensity can have “a dramatic impact on the nature of flooding in urban environments.”
“Likewise, changes in land use in rural areas, for example deforestation, can also change the hydrological characteristics of catchments leading to changes in flood risk,” he said.
Even before climate change, said Sinai, Australia had one of the most variable climates in the world.
“This variability is driven by regional climate drivers such as ENSO in the Pacific (El Niño, La Niña cycles), the IOD (Indian Ocean Dipole), and the Southern Annular mode, which influence weather patterns in our region,” he said.
Like many settlements around the world, he said, many of Australia’s towns and cities were historically sited adjacent to rivers and therefore prone to flood impacts.
“We have also seen significant development in flood prone areas as cities have expanded, resulting in legacy development subject to floods and the impacts of climate change,” said Sinai.
In line with many stakeholders in Australia’s insurance industry, including the ICA, Sinai agrees that much more must be spent on preventing floods.
“It has been widely reported that Australia spends 97% on recovery and only 3% on prevention. Governments must change that equation and shift investment into mitigation. A dollar spent on recovery is just that, whilst funds spent on mitigation have been shown to yield significant returns,” he said.
Sinai added that some studies have shown the benefit of investing in prevention to be as high as 20 times the cost.
“Grey infrastructure solutions, including dams, seawalls, roads, pipes, canals, dikes and dredging of waterways - remain in use and fulfill their purpose but can often overlook conservation of biodiversity,” he said.
Sinai said a variety of sustainable green infrastructure solutions have been developed, tested and proven to be economically viable. He said their use for flood protection is garnering more attention from policymakers.
“Green infrastructure yields economic benefits far beyond risk protection and have a positive impact on water supply, agriculture, landscape management, natural habitat, biodiversity and tourism while also providing a healthier environment for people and species,” he said.
Sinai said insurers can support sustainability and “gain access to new and emerging risk pools” by underwriting green infrastructure projects.
As for the insurance affordability question facing a business on the main street of Lismore where flood insurance can cost $100,000 per year: “This is a million-dollar question,” said Sinai. “With any risk you have four response options: avoid it, accept it, mitigate it, or transfer it,” he said.
Avoiding a flood risk, said Sinai, involves sound planning for new developments and the relocation of properties and even whole towns for legacy risks.
Accepting a risk, he said, means living with it and self-insuring.
Mitigating a risk, said Sinai, can involve mitigation measures on an individual level like raising houses and flood barriers or governments and their larger scale investments like levees and dams.
Transferring risk, he said, in the case of flooding where insurance can be unaffordable or unavailable, involves looking for other risk reduction options like mitigation.
Sinai said coordination and cooperation across all levels of government and industry is necessary.
“It is only through a coordinated approach that we can build a long-term sustainable response to increasing flood risks,” he said.
