Data from Swiss Re Institute’s latest sigma report shows that floods accounted for 31% of global economic losses from natural catastrophes in 2021, yet just 25% of flood risk is covered by insurance.
Global economic losses from floods reached $82 billion in 2021, yet insurance and reinsurance industry losses totalled just over $20 billion, highlighting a large flood protection gap.
Overall, natural catastrophe events in 2021 drove total economic losses of $270 billion and insured losses of $111 billion, which is the fourth highest on sigma records.
According to Swiss Re, the high level of catastrophe activity experienced last year has continued the long-term trend of insured losses rising by an average of 5-7% annually worldwide.
The costliest single event of last year was Hurricane Ida in the U.S., but secondary peril events again made up the most of the insured losses from nat cats. This was driven in part by the severe flooding in Europe in July, which was the costliest natural disaster on record in the region.
Martin Bertogg, Head of Catastrophe Perils at Swiss Re, commented: “Floods affect nearly a third of the world population, more than any other peril. In 2021 alone, we witnessed more than 50 severe flood events across the world. Given the scale of devastation, flood risk deserves the same attention and risk assessment rigour as primary perils such as hurricanes.”
While 2021 was a notable year for floods, already in the opening months of this year, Australia has experienced some significant flooding which has caused substantial insured losses.
As highlighted by Swiss Re, the reality is that flood losses will continue to rise with climate change and urbanisation.
“Growing losses from floods are becoming ever more apparent,” said Jérôme Jean Haegeli, Swiss Re’s Group Chief Economist. “Last year we had another wake-up call. There is a growing urgency for action to increase the resilience of societies worldwide. Together with the public sector, re/insurers are well equipped to steer development away from high-risk areas and invest in protective measures such as green infrastructure. This keeps assets insurable while also improving the growth outlook.”
According to sigma’s data, flooding is by far the most frequently occurring natural peril, with approximately three times as many major flood events in the past decade than tropical cyclones.
In fact, floods were also causing more than a third of all fatalities related to nat cats and economic losses from floods amounted to 23%, which is the second highest after tropical cyclones.
But despite the high economic burden from floods, Swiss Re Institute reports that over the past 10 years, just 5% of severe flood losses were insured in emerging markets and 34% in advanced economies.
While the flood protection gap is large around the world, Swiss Re finds that the largest gap is in Asia where only 7% of economic losses are covered by insurance. In contrast, 34% of flood losses in Europe are insured.