While protective measures like dykes, dams, and floodgates can be expensive, their financial benefits can outweigh post-disaster rebuilding expenses by up to ten times, according to a new study from the Swiss Re Institute.
The firm observed that economic losses caused by natural catastrophes reached an estimated $280 billion in 2023, with $51.6 billion of this total driven by floods.
As per the Swiss Re Institute, these losses are likely to rise as climate change intensifies extreme weather events, and rapid urban expansion increases asset values in high-risk areas.
Comparing economic benefits and cost ratios of selected flood adaptation measures, the Swiss Re Institute’s study found that grey infrastructure, such as dykes and levees, is highly effective in reducing coastal flood damage.
“Globally, their benefits can outweigh costs by two to seven times, and even up to ten times in flood-prone areas. Built to optimal standards, these structures can reduce flood damage by 60-90%, especially in densely populated regions. In less populated areas, nature-based solutions such as barrier island restoration or foreshore vegetation can be equally effective.” the study report said.
Similarly, policy interventions, such as land use restrictions, can reportedly enhance the value of flood prevention, particularly in emerging economies.
“Flood defences and zoning restrictions are found to be almost twice as effective and feasible as accommodative measures, such as dry proofing, for both coastal and river floods. All flood interventions, especially when upgraded and maintained, can benefit both insurers and policyholders.”
It continued, “The public and private sectors can work together in facilitating and accelerating risk adaptation: by focusing on preventing and reducing future flood losses, the public sector can shift the remaining risks to the re/insurance industry and support economic stability after disasters. By being involved in the early stages of planning protection measures, the re/insurance industry can help mitigate risks and provide financial protection.”
Veronica Scotti, Chairperson of Public Sector Solutions at Swiss Re, said, “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. 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. Quantifying the benefits of adaptation measures is a key step towards facilitating public-private investment and ultimately closing the huge financing gap.
“To determine how effective investments in flood adaptation measures can be, it is important to quantify their financial benefits. Swiss Re Institute has carried out a study comparing economic benefits and cost ratios of selected flood adaptation measures.
“This value can serve as a guideline for investment decisions and help identify the best flood adaptation methods to ensure a community’s economic stability and safety.”
