Economic losses from natural disasters totaled $280 billion, $51.6 billion accounted for by floods
Economic losses from natural disasters in 2023, according to estimates by the Swiss Re Institute, amounted to about 280 billion dollars, of which 51.6 billion dollars accounted for floods.
Losses are expected to increase due to increased extreme weather events due to climate change, as well as increased asset values in high-risk areas due to rapid urban expansion. Protective measures such as dams, dams and locks require significant investment, but their economic benefits can exceed disaster recovery costs by up to 10 times, according to research from the Swiss Re Institute. Forinsurer chose the most important.
Determining the best practices for flood adaptation to ensure the health, safety and economic stability of communities can be challenging. There are no standardized methods or datasets for comparing the cost-effectiveness and effectiveness of flood adaptation initiatives and policies. However, it is possible to use the benefit-cost ratio (BCR) as a standard measure of comparison, which helps speed up the decision-making process.
For river floods, water retention zones have the highest benefit-to-cost ratio, which can reduce the expected annual flood damage in Europe by 75%. However, they are difficult to build in limited spaces or on narrow floodplains. Strengthening existing dams can reduce damage from river floods by 60% and bring the greatest economic benefits in densely populated areas.
Investments in climate change adaptation, including flood preparedness, not only contribute to economic stability and create jobs, but also help protect people. However, funding for these activities is still insufficient. Therefore, it is important to create conditions for the attraction of private capital in climate change adaptation projects and at the same time optimize the use of public funds.
Veronica Scotti, Head of Public Sector Solutions at Swiss Re
“Assessment of the economic benefits of adaptation measures is a key step to promote investment and close the large financing gap,” according to Swiss Re.
Determining the effectiveness of investments in flood protection measures requires quantifying their financial benefits. The Swiss Re Institute has conducted a study comparing the economic benefits and cost-benefit ratios of selected protection measures. These data can guide investment decisions and help select the best adaptation methods to ensure economic stability, safety and resilience of communities.
The cost-benefit ratio can vary greatly by region. Research shows that gray infrastructure solutions such as levees and levees are very effective in reducing flood damage. In the world, their benefits can exceed costs by 2-7 times, and in areas prone to flooding, even by 10 times. Built to optimal standards, such structures can reduce damage by 60-90%, especially in densely populated areas. In less densely populated areas, nature-based solutions such as barrier island restoration or riparian vegetation can be equally effective.
Policy measures such as land use restrictions can also improve the effectiveness of flood protection, especially in developing countries. Protective structures and zoning are found to be almost twice as effective as adaptive measures, such as sealing buildings, in preventing flooding.
All flood protection measures, especially when they are updated and maintained in good condition, benefit both insurers and policyholders. The public and private sectors can work together to accelerate adaptation to risks: the government can focus on reducing losses and transfer residual risks to insurance and reinsurance, contributing to economic stability after disasters. The insurance sector involved in the early stages of planning can help reduce risks and provide financial protection.
Governments and public bodies can help manage the effects of natural disasters through risk reduction measures such as planning, policy development and infrastructure investment. If the public sector focuses on avoiding and mitigating future losses from natural disasters, residual risk can be transferred to insurance and reinsurance, contributing to post-disaster economic stability and growth. As the number of natural disasters increases, such resilience will become increasingly important.
Proactive adaptation to floods provides sustainable financial and social benefits, in contrast to the high costs of flood recovery. Reducing the risk of flooding also makes insurance easier to obtain and more affordable, which is important as climate change causes more frequent weather-related disasters. However, despite significant flooding, many countries still do not prioritize investment in adaptation.
No single flood adaptation method will be ideal for a situation, and the risk of flooding cannot be completely eliminated.
The best approach to flood risk management will depend on local factors such as:
assessment of annual losses;
the nature of the flood risk;
population and assets at risk;
resources and costs;
benefit-to-cost ratio;
available space;
effectiveness of the intervention;
the duration of stability after the intervention and the timing of construction.
The insurance and reinsurance industry can help governments and policymakers recognize and understand risks. It can also offer solutions to reduce risks, facilitate rapid recovery and manage residual risks, say Swiss Re analysts.