November 22nd, 2012

Increased Flood Loss Potential

Posted at 1:00 AM ET

David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President and Lucy Dalimonte, Senior Vice President

Making use of all available tools and practicing comprehensive exposure management will both strengthen (re)insurers’ ERM practices and allow them to make informed risk management and reinsurance decisions as they enter new markets. Certainly, flood risk is prevalent and increasing in almost every developing economy. Recent studies by Swiss Re (1) and the Organisation of Economic Co-operation and Development (OECD) (2) suggest flood loss potential will grow as emerging economies continue to prosper.

The Swiss Re study on flood risk in emerging markets shows some developing nations have even greater flood exposure than Thailand. China tops Swiss Re’s list for the highest flood risk in emerging markets, followed by the other BRIC nations (Brazil, Russia and India). Thailand ranks seventh on the list, while Vietnam ranks tenth. Kazakhstan and Azerbaijan are also among the top ten due to their recent high economic growth and increasing foreign investment, particularly in the oil and gas sector. This heightened flood risk, combined with the expected rapid increase in economic growth and insurance penetration in these countries, emphasizes the flood loss potential in emerging countries, particularly in China and India where several large industrial parks are located.

This conclusion is supported by an OECD study that focuses on how the world’s largest port cities are likely to be exposed to coastal flooding by the 2070s. By analyzing the impact of climate change (sea-level rise and increased storminess), subsidence, population growth and urbanization over the next 60 years, the study shows that the growth and development of cities in Asia particularly will drive the increase in coastal flood risk globally during this period. Currently, the ten cities with highest asset exposure (3) to coastal flooding are all located in the developed countries of the United States, Japan and the Netherlands (Miami, Greater New York, New Orleans, Osaka-Kobe, Tokyo, Amsterdam, Rotterdam, Nagoya, Tampa-St. Petersburg and Virginia Beach). By the 2070s, however, the OECD expects seven of the top ten cities most exposed to coastal flooding in terms of assets to be in developing Asian countries as a result of the rapid urbanization and economic growth expected in the region (see Table 1).

Table 1



1.  Swiss Re - Natural Catastrophes and Man-Made Disasters in 2011: Historic Losses Surface from Record Earthquakes and Floods.
2.  Nicholls, R. J. et al. (2008) - “Ranking Port Cities with High Exposure and Vulnerability to Climate Extremes: Exposure Estimates”, OECD Environment Working Papers,
No. 1, OECD Publishing.
3. The term “assets” generally refers to economic assets in cities in the form of buildings, transport infrastructure, utility infrastructure and other long-lived assets.

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