Rising to the challenge: Flood risk

Rising to the challenge: Flood risk | Insurance Business Canada

Rising to the challenge: Flood risk

Floods are the most common and damaging natural catastrophes of our time. Each year, flooding affects an average of 96.9m people and causes US$13.7bn in damage globally, according to the United Nations Office for Disaster Risk Reduction. Last year, floods accounted for 47 percent of weather-related loss events, up from a yearly average of 40 percent, according to Munich Re’s natural catastrophe review. 

And because of a warming global atmosphere and increasing rates of persistent rainfall events, the numbers will only get worse. 

But the changing climate tells only half the story. “More and more businesses and people seem to be moving to areas where there is a natural catastrophe footprint,” says Rick Miller, US property practice leader at Aon Risk Services. Across the globe, the built environment is expanding into areas that face ever-higher exposure to extreme weather. 

For example, 2011 was not the first time Thailand experienced flooding, but recent industrialization caused widespread damages. “Now, [in the Thai region] you have factories everywhere, houses everywhere. Before, it was just swamps and fields. So, of course, there was less damage than there is now,” says Carl Leeman, chief risk officer of Belgian logistics company Katoen Natie. 

That means companies today have more assets exposed to flood risk. In the UK, businesses are now more likely to be flooded than burnt down, according to the Environment Agency. The heightened risk is being felt worldwide as communities continue to develop in at-risk areas. “In the US, Florida has drastically changed over the years,” says Miller. “There’s certainly a lot more risk.”

In the long term, companies can reduce their flood risk by moving their operations and supply chains away from high-risk areas. In the shorter term, risk managers can better understand their companies’ flood exposure by using flood catastrophe models. 

Ambiental is one such analytics firm looking to provide risk managers with those insights. Through analysis of topographic and hydrological data, the company claims to predict risk with 85 percent reliability. It’s being used in programs of some of the world’s biggest international brokers, like Aon. “By supplying the Ambiental FloodCAT model for Australia in our ELEMENTS platform, this is giving our clients greater choice, flexibility and value for money when it comes to managing their flood exposures,” says Adam Podlaha, head of impact forecasting international of Aon Benfield.

Still, flood risk modelling is in the early stages of development. “The catastrophe models that are out there are really just starting to understand flood,” says Miller. “They’ve addressed windstorm and earthquake for a while — those perils are a little easier to understand — but flood’s a little harder from that perspective. I think some of the tools risk managers have aren’t quite as refined and developed as they may be for other catastrophic type perils.”