Reinsurance News

Flood risk routinely underestimated, warns MMC

22nd July 2022 - Author: Matt Sheehan

Re/insurance broker Marsh McLennan has released its updated Flood Risk Index 2.0, which maps how a changing climate will shape flood risk in the future.

Flood insurance and reinsurance imageThe report warns that flooding is the most pervasive natural disaster, and yet its costs are routinely underestimated.

And now, climate change, economic and demographic trends, and a chronic shortfall in investment in resilience are combining to drive risk higher, MMC warns.

The broker’s Flood Risk Index includes risk scores for 180 countries in present-day conditions and shows that a 3. 5 °C warming would lead to a dramatic increase in flood risk globally, and that even limiting temperature rise to 1.5 or 2 °C would substantially worsen the threat of flooding.

According to Marsh McLennan’s estimates, 23% of the world’s power generation capacity, 26% of international port outflows, and 18% of international airport seats are currently at risk of flooding, and a 2 °C warming would cause these percentages to rise to 41%, 52%, and 37%, respectively.

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The Index aims to highlight the urgency of taking adaptive measures to reduce risks, and to help governments and organizations better assess their exposure and vulnerability to more frequent and severe flooding.

In a report released alongside the updated index, also MMC explores the socioeconomic impacts of flooding and looks the current state of flood risk globally, its economic and societal consequences, and the role of insurance in protecting the most vulnerable.”

Increasing flood risk threatens prosperity and well-being in numerous countries, and demands a strategic response from governments. The problems arising are interrelated and systemic, ranging from business interruption and financial instability to a growing burden of public contingent liabilities,” the report concludes.

“The wide-ranging and complex nature of these impacts indicates national flood risk strategies must be broad in scope, ensuring alignment across a variety of actors such as national governments, local authorities, businesses, financial regulators, and insurers,” analysts explained.

“This in turn requires coherent policies and regulations, aligned incentives, and accessible, robust flood risk data. Strategies must also be long term in their outlook, as climate change and increasing exposure mean risks in many countries will increase for the foreseeable future.”

In a second report, MMC discusses the implications of flood risk for businesses and how firms can reimagine their approach to flood risk management in the context of climate change, growing business complexity, and stakeholder management.

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