Financial benefits reaped from flood resilience are estimated to be up to 10 times greater than the costs of rebuilding after a flood, a new study by Swiss Re Institute shows.
Nature-based solutions for preventing flooding and infrastructure development (i.e. the construction of dykes, dams and flood gates) would both reduce future losses and benefit both insurers and policyholders, write the authors of Swiss Re’s report, Resilience or rebuild?
Although it would be pricey to fund, investing in infrastructure development could yield returns between two and 10 times the initial cost outlay. These returns are calculated based on damage losses avoided. One dollar of investment in flood prevention can potentially return up to US$120 in benefits, though it comes with regional variations.
“Investing in climate adaptation has three-fold benefits: reduced future losses; enhanced productivity and innovation; and environmental and social advantages,” the report authors write. “Government adaptation measures can safeguard the local community from property damage, enhance human safety, and lessen the stress and impact of interruptions and disasters.”
Not to mention, reducing flood risk also means insurance will be more accessible and affordable, reducing further economic strain.
This year in Canada, flooding cost $3.4 billion in insured damages between just the summer’s Toronto and Quebec flood events alone. And last year, flooding cost US$51.6 billion globally.
What’s more, without adaptation measures, the projected annual damage from coastal floods could rise by approximately 150 times between 2010 and 2080, Swiss Re forecasts.
But buy-in from public and private enterprises might be difficult to achieve.
Many countries prioritize post-flood rebuilding over adaptation, leading to much higher long-term costs. Decision-makers in both the public and private spheres must work together to reduce the cost and impact of floods in their regions, the authors write.
“Investments in climate adaptation, such as flood preparedness, not only promote economic stability and create jobs, but also help keep people safe. Yet there is chronic underfunding,” says Veronica Scotti, Swiss Re’s public sector solutions chairwoman.
“It is therefore crucial to create the conditions for private capital to flow into climate adaptation projects and at the same time optimise the use of public funds.”
Governments without flood-resilient infrastructure shift the cost of the risk to the insurance sector, but that means they also retain less capital for disaster recovery.
Those saved funds can be used for “risk prevention and adaption,” Swiss Re writes. And that benefits the insurance sector, too.
“If the public sector focuses on avoiding and reducing future natural catastrophe losses, the residual risk can be transferred appropriately to the re/insurance industry, supporting post-disaster economic stability and growth. As the number of natural catastrophes grows, such resilience will become ever more important.”
Feature image by iStock.com/MHJ
