Multiple scientific studies, including a 2021 report from the Intergovernmental Panel on Climate Change (IPCC), have found that a warming world is likely to make extreme weather events more frequent.
According to Paolo Larentis (pictured above), senior engineering risk and natural hazards specialist at FM Global, the recent damaging floods in Belgium, Germany and China showed the extent of the impact of severe flooding.
“While it’s not possible to explicitly say that climate change was the cause of any individual event, it’s likely that a changing climate is affecting the probability of these events occurring,” Larentis told Corporate Risk and Insurance. “Other factors, such as urban developments on flood-susceptible terrain, ineffective emergency preparation or forecasting are also likely to play a role and affect the likelihood of flood loss occurring.”
Flooding has huge impacts on the global economy, and it consistently ranks as one of the top causes of property losses for the insurance industry.
“Flood damage can be more significant than business leaders expect, and the recovery can be both more time-consuming and costly,” Larentis said. “The water in a flood is often very dirty and contaminated with waste and debris. Additionally, erosion as well as sediment carried by floodwaters can increase the damage suffered, with the result that buildings and infrastructure, such as roads, bridges, electrical and gas networks, can be severely damaged and impact the recovery process.”
In some instances, Larentis said, businesses will not be able to rebuild in the same location, due to cost or the location’s vulnerability to flooding. Business interruption is also a significant risk, especially for companies operating expensive and large-scale equipment that is damaged. In these cases, replacement or repair time could last for months, which will further extend business interruption time and possibly affect shareholder value.
How can businesses mitigate flood risk?
According to Larentis, there are various measures businesses can take to mitigate flood risk – both proactive and reactive.
“Firstly, understanding the risk at key locations is vital, and this is why using up-to-date flood maps is so important,” Larentis said. “If a facility is at an at-risk location, then decisions can be made to reduce the exposure – either implementing physical measures to reduce the risk and build resilience, or alternatively moving the facility or key operations to a less exposed location.”
Physical risk mitigation measures include the installation of flood barriers to direct water away from a facility, as well as reinforcing the building to withstand flooding and wind damage that may be associated with extreme weather events.
“In addition to physical risk management, businesses should also ensure that appropriate business continuity plans are created and practised, providing guidance to employees around how to respond before and after a flood or other extreme weather event impacts a business,” Larentis said.
Larentis expects a changing climate will drive insurers, scientists, governments and other organizations to revisit existing models and work together to update them to reflect the changing global conditions.
“Where possible, up-to-date flood maps based on physical and topographical data, such as national flood maps or FM Global’s Global Flood Map, should be used to assess the flood-risk at different locations, rather than relying on purely historical models, which may not reflect current conditions,” he said.