Economic losses from natural catastrophes are estimated at $280 billion for 2023, with floods accounting for $51.6 billion of the total, according to Swiss Re Institute.
As climate change continues to amplify extreme weather events and urban expansion raises asset values in high-risk areas, losses are expected to grow. While preventive measures like dykes, dams, and flood gates come at a cost, the financial benefits of such infrastructure can surpass reconstruction expenses by up to tenfold, a Swiss Re Institute study reports.
Veronica Scotti (pictured above), chairperson of Public Sector Solutions at Swiss Re, noted that investments in climate adaptation, including flood preparedness, support economic stability, job creation, and public safety. However, a significant funding shortfall exists.
“It is therefore crucial to create the conditions for private capital to flow into climate adaptation projects and at the same time optimize the use of public funds,” Scotti said. “Quantifying the benefits of adaptation measures is a key step towards facilitating public-private investment and ultimately closing the huge financing gap.”
Swiss Re Institute conducted a study assessing the economic benefits and cost ratios of various flood adaptation measures, offering insights to guide investment decisions and identify the most effective flood prevention strategies to bolster economic resilience and community safety.
Benefit-to-cost ratios vary widely by region, according to Swiss Re’s research. Grey infrastructure, such as dykes and levees, is highly effective for mitigating coastal flood damage, providing benefits two to seven times their costs, and in some cases, up to ten times in flood-prone areas. When designed to optimal standards, these structures can cut flood damage by 60% to 90%, particularly in densely populated areas.
In less populated regions, nature-based solutions, like barrier island restoration or foreshore vegetation, can yield comparable benefits. Additionally, policy measures, such as land use restrictions, can enhance flood prevention’s value, especially in emerging markets. Research indicates that flood defenses and zoning restrictions can be nearly twice as effective as adaptive methods like dry proofing for both coastal and riverine floods.
Upgraded and well-maintained flood control systems can offer advantages to both insurers and policyholders. Collaboration between the public and private sectors can expedite and strengthen risk adaptation.
By focusing on minimizing future flood losses, public entities can transfer residual risks to the re/insurance industry, supporting economic stability post-disaster. Involving insurers early in protection planning also aids in risk mitigation and provides financial safeguards for communities.
What are your thoughts on this story? Please feel free to share your comments below.
