A new report from Swiss Re underscores the fact the “insured flood losses have increased from $1–2 billion in 1970 to $15 billion in 2011, which it describes as an “alarming rate” while posing “unique challenges for the industry” as to their insurability.
The report – Flood – an underestimated risk: Inspect, inform, insure – has been issued along with the release of a flood app, which “packages Swiss Re’s flood expertise into an entertaining and interactive medium for iPads.”
It points out that “no other natural catastrophe impacts as many people as flooding with an estimated 500 million people affected every year, and, as noted above, the losses have been increasing. “Recent flood events in Thailand, Australia and the Philippines have shown that floods are now rivaling earthquakes and hurricanes in terms of economic losses,” Swiss Re added.
The increase, however, hasn’t been accompanied by a rising awareness of flood risks, and their impact is still relatively low,” a gap which the report is designed to close.
Matthias Weber, Swiss Re Group’s Chief Underwriting Officer, explained: “With this publication we want to raise greater awareness of floods, their risks and the role of insurance in addressing them. We show what it takes to tackle the challenges in flood insurance and what successful solutions might look like for homeowners and companies.”
While insuring against floods is inherently difficult, Swiss Re doesn’t think it’s impossible. However, in order to do so the industry must address such issues as “population growth, demographic change, a higher concentration of assets in exposed areas, greater vulnerability of insured objects and climate change.” All of which are “contributing to the increasing costs of flood damage.” As a result “the rising costs of floods are creating challenges for the insurance industry and the economic viability of flood insurance is currently an issue under scrutiny.”
Jens Mehlhorn, Head of Flood at Swiss Re and the report’s key author, stated: “2011’s $12 billion insured losses in Thailand really highlighted the potential for flood to cause extreme losses. The insured losses corresponded to 1800 percent of the country’s total annual property premium – and this emphasizes the difficulties the industry faces in creating an economically viable approach to flood insurance.”
The flood report investigates the “ways of building adequate insurance populations to share the risk of flooding and how insurers can play a role in advising on risk-minimization strategies such as flood-walls and urban planning,” Swiss Re explained. It also “investigates national programs which are currently meeting the challenge of providing flood coverage.”
Swiss Re points out that one of the most important lessons learned from the floods in Thailand “was the identification of ‘hot spots’ – or clusters of globally relevant industries in flood prone regions. These areas can cause extreme losses because claims are not only incurred locally, but through interruptions to supply-chains and decreased manufacturing productivity internationally. The identification of these hot spots was enabled by Swiss Re’s Global Flood Zones® model, which provides very high resolution flood maps for the entire globe.”
Mehlhorn added: “The existence of such hot spots has increased the emphasis on risk modeling and underwriting tools. It is crucial to get the information necessary to know where risk clusters have developed and how significant a flood event would be in those areas. The Global Flood Zones® tool is a very significant step forward for the industry.”
Swiss Re is also launching a flood app for iPads, which is available in the App Store. The app provides an interactive approach to presenting Swiss Re’s expertise to a broader audience. It provides rich interactive content around the issue of flood risks and flood insurability. It also offers an interactive tool to examine the hot spot risk of 50 major metropolitan areas around the globe.
Weber observed: “Knowledge-driven companies like Swiss Re need to embrace new channels for communicating their expertise. The flood app allows us to reach out to a broad audience in an entertaining and interactive way.”
Source: Swiss Re
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