Flood Disasters: Lessons from the Past – Worries for the Future
Gerhard Berz
Geoscience Research Group
Munich Reinsurance Company, D-80791 Munich, Germany

Summary

Flood disasters account for about a third of all natural catastrophes throughout the world (by number and economic losses) and are responsible for more than half of the fatalities. Trend analyses reveal that major flood disasters and the losses generated by them have increased drastically in recent years. Cooperation between the state, the affected population, and the insurance industry assumes a key role with regard to the flood hazard. Scientists, engineers and insurers must work together in formulating their requirements and shaping them in such a way that politicians can derive clearly recognisable policy options (e.g. land use restrictions) from them. Another important aspect is stepping up the efforts being made towards curbing climate change, which will, otherwise, exacerbate the risk situation in the future.

Introduction

The great floods that affected a number of regions in recent years (e.g. China, USA, Europe) attracted great attention throughout the world. The analysis of world-wide loss events shows that there are distinct increases in respect of the economic losses, but also the rising number of events represents a worrying trend. Insured losses have increased even more distinctly on account of the fact that the majority of the world's insurance markets offered virtually no cover against flood losses before the 1970s.

World-wide, flooding is a leading cause of losses from natural disasters and is responsible for a greater number of damaging events than most other types of elemental perils. At least one third of all losses due to nature’s forces can be attributed to flooding. Flood damage has been extremely severe in recent decades and it is evident that both the frequency and intensity of floods are increasing. In the past ten years losses amounting to more than 250 billion dollars have had to be born by societies all over the world to compensate for the consequences of floods. There are countries, such as China, in which flooding is a frequent, at least annual event, and others, such as Saudi Arabia, where inundation is rare, but its impact is sometimes also severe. No populated area in the world is safe from being flooded. However, the range of vulnerability to the flood hazard is very wide, in fact wider than for most other hazards. Some societies (communities, states, regions) have learnt to live with floods. They are prepared. Others are sometimes taken completely by surprise when a river stage (or the sea) rises to a level residents have never experienced in their lifetime. Three aspects are very important in this context: (1) the dramatic increase in the population of the world and some particular regions, which creates the necessity to settle in areas that are dangerous; (2) the migration of refugees (political, social and other) to environments with which they are not familiar; (3) the increased mobility and the desire of people to live in areas that have a beautiful natural environment and a certain climate. All these factors bring people into areas whose natural features they do not know. They are not aware of what can happen and they have no idea how to behave if nature strikes. But even if people have experienced a disaster situation themselves the tend to forget its lessons within a few years only.
In the historic past, floods were responsible for a huge number of deaths. With the exception of storm surges this is not so anymore today. The table of the deadliest disasters during the past 30 years contains only two water-related great disasters, the 1970 and 1991 Bangladesh storm surges, which rank first and third respectively. For no other type of natural disaster have early warning methods become more operational, more reliable and hence more effective than for extreme hydrological events. Nowadays geological disasters (earthquakes, volcanic eruptions, landslides) pose the deadliest threat. In addition to their extremely sudden onset, the prediction of major geological events is difficult or even impossible, and in most cases there is no time left for warning. Exceptions are perhaps well-observed and well-instrumented volcanoes; predicting their eruptions is quite feasible, although predicting their various impacts will remain difficult. Hydrological events almost always build up relatively slowly. Even the few minutes an approaching flash flood allows to leave the scene may be enough for many people to save their lives while the surprising strike of an earthquake leaves so many dead or injured.

If we look at the losses, we see a different picture. Economically, floods are a leading cause of losses from natural events (equal to earthquakes and storms). Not only "Great Disasters" display such a tendency, but also the total annual amount of losses from the many small and medium-sized events. Additionally, one should bear in mind that the financial means societies all over the world spend on flood control (dikes, reservoirs, etc.) is a multiple of the costs they devote to protection against other impacts from nature.

As far as insured losses are concerned, another major event type, windstorm in all its various forms, dominates the statistics. Among the top nine insurance catastrophes, seven belong to the category of windstorm. In a list ordered by insurance losses, the costliest floods ever incurred by the insurance industry, the "Great Flood of 1993" along the Mississippi, and the China Floods 1998 rank only 19, whereas the Odra flood of 1997 ranks in the thirties. The reason for this shift is the much higher insurance density for storm, whereas cover for the flood risk is offered very conservatively in many markets or does not exist at all.

Fig. 1: Natural catastrophes world-wide 1988-1997
  Percentage distribution by event type

A comparison of flood and all other natural hazards in long-term analyses (1988-1997) reveals the following features (see Fig.1):

• Floods account for about a third of all natural catastrophes.
• They cause more than half of all the fatalities.
• They are responsible for a third of the overall economic loss.
• Their share in insured losses is relatively small, with an average of under 10 %.

Table. 1 presents the largest flood disasters (without storm surges) of the 1990s throughout the world, ordered by the number of fatalities, economic losses and insured

Table 1: Significant flood disasters 1990-1998*

a) Deaths

* storm surges excluded
** US$ million (original values)

b) Economic losses

Every year between 500 and 700 events are recorded. If we look at the number of events over the past twelve years (for which there are verified data, whereas the records for previous years are incomplete), we will see that as far as the number of events is concerned there are no significant trends visible, neither globally nor in Europe (see Fig. 2). The number of flood events varies substantially from year to year and exhibits no trend either. These observations do not apply to loss amounts, however, which have increased significantly in the past years and decades.

Table 2: Great Flood Disasters* 1950 – 1998
Comparison by decades

Losses in bn US-$, 1998 values         © Munich Re 1999

c) Insured losses

*US$ million (original values)         © Munich Re 1999

This table shows that floods continue to cause the largest numbers of deaths in the poor and heavily populated countries of the world. In terms of economic losses, a regional distinction is hardly possible any more. Large loss amounts are mainly generated by the accumulation of values in the regions affected or by exceptionally long-lasting events and widespread flooded areas. The largest insured losses are encountered, as might be expected, in the industrial countries, where the insurance density is generally at its highest.

Trends

The following analysis involved an analysis of the flood disasters registered in Munich Re's natural loss events database (NatCatSERVICE). For almost 50 years, data on natural loss events have been gathered from all over the world and entered in this database (property losses and bodily injury). Two different approaches were chosen. The first involved examining all the loss events we had recorded since 1987 (earthquake, windstorms, severe storms, floods, droughts, etc.), and the second focussed on great natural catastrophes since 1950. The advantage of this approach is obvious: An analysis of all loss events recorded might simply reveal an increase due to improved flows of information. The media revolution (global information networks, Internet, data highways, etc.) is a – possibly substantial – increase in the volume of information and hence in the data set itself. Great natural catastrophes can be analysed very well in retrospect, because even records that go back several decades can still be investigated today. This means that a considerably longer period of time can be observed here too.

Fig. 2: Development in the number of recorded natural loss
events globally and in Europe 1987 – 1998

Every year between 500 and 700 events are recorded. If we look at the number of events over the past twelve years (for which there are verified data, whereas the records for previous years are incomplete), we will see that as far as the number of events is concerned there are no significant trends visible, neither globally nor in Europe (see Fig. 2). The number of flood events varies substantially from year to year and exhibits no trend either. These observations do not apply to loss amounts, however, which have increased significantly in the past years and decades.

Table 2: Great Flood Disasters* 1950 – 1998
Comparison by decades

Losses in bn US-$, 1998 values,         © Munich Re 1999

* In this context, disasters are classed as great if the ability of the region to help itself is distinctly overtaxed, making interregional or international assistance necessary. This is usually the case when thousands of people are killed, hundreds of thousands are made homeless, or when a country suffers substantial economic losses (depending on the economic circumstances generally prevailing in that country).

If we compare the number and extent of great flood disasters in the last decades (see Tab. 2), we see that economic losses of the last ten years are ten times as high as in the 1960s – already after adjusting for inflation. The number of disasters has also increased (by a factor of 5). As far as insured losses are concerned, flood insurance was still in the early stages of development in the 1950s, so that a factor can only be given for the 1960s (37-fold increase). In the future the long-term global trend towards multiple risks cover, which normally includes flood losses, will push the figures up even more distinctly.

Causes

The main reasons for the increase in catastrophes, which have been dealt with in numerous publications, are as follows:

• Population trends globally and in exposed regions
• Increase in exposed values
• Increase in the vulnerability of structures, goods and infrastructure
• Construction in flood-prone areas
• Failure of flood protection systems
• Changes in environmental conditions.

The last mentioned factor plays a decisive role and has worsened the situation in many regions. As a rule, however, it cannot be classed as the main reason. Extreme hydro-meteorological circumstances encountered in great floods usually fall within the range of natural variability and can only partially be linked with the emerging climate change. Some features appear to fit very well into the picture of a "warmer" climate (e.g. rainy and possibly mild winters in central Europe), but climate change cannot be made the scapegoat for all the events of recent years. Nevertheless it will certainly have global and regional effect on the flood risk.

Prospects

A cautious look into the future shows that as far as flood events and catastrophes are concerned there are hardly any positive developments to be expected. The decisive factors are:

Population growth
Population growth will persist. The development in exposed regions will continue to play a major role in terms of flood. Today, more than half of the people live within 60 km of the coast; 65 percent of all cities with more than 2.5m inhabitants are directly on the coast. And migration towards coastal regions will continue.

here are three main reasons:

• In some countries the pressure of population growth is increasing and there is no choice but to settle in exposed areas. Bangladesh, where thousands of people are killed in floods almost every year, is a perfect example.
• In other countries, like the United States, migration to the coast is increasing for other reasons, such as aesthetic factors or climatic preference. By the year 2010, for example, about 30 percent of all US Americans will be living within 10 miles of the coast.
• The urbanisation is continuing unabated. The number of cities with a population of at least one million has increased more than four-fold in the last 50 years, with numerous megacities being created. Here in particular, the areas where the poorest of the poor live are hit time and again by severe flood and landslide catastrophes because of the lack of precautionary measures.

Land use
As far as the flood hazard is concerned, there does not appear to be any return to reason in terms of land use. This applies just as much to those affected, who seldom move out of exposed areas even after a loss event has occurred, as it does to the political powers, who have not developed appropriate strategies or are hesitant when it comes to land use recommendations or restrictions. Industrial and residential areas are located behind supposedly safe dikes in flood-prone areas, where the trust placed in the area's safety leads to extreme concentrations of values.

Insurance
The insurance density is increasing all over the world – rapidly in some countries, slowly in others. The insurance of floods presents a particular challenge, as here the principle of solidarity does not work because the transfer of losses from those affected to the community at large is not feasible at a realistic premium. In many markets insurance is prevented from functioning by antiselection, i.e. the choosing of flood cover only by those seriously exposed. Nevertheless, there is a trend towards multiple-risk and all-risk covers particularly in the industrial countries. Flood insurance exerts an indirect influence on the state's obligations (protection of its citizens and their resources etc.). The question is whether flood protection and land use can be channelled in the right way if the public, industry and commerce are fully insured. An improvement – in the direction of fewer losses – is only possible if insurers can impose conditions in the form of requiring preventive measures. The incorporation of a substantial deductible in the insurance terms and conditions is the best precautionary measure of all. But the opportunities open to insurers are limited on account on the competitive situation. It is only when the loss burden explodes that the companies in the affected markets react with the introduction of deductibles, of risk-commensurate prospective premiums and of limits of liability.

Besides providing purely financial protection for policyholders, insurance companies perform two further tasks that are vital to their own existence:

Loss analysis
It goes almost without saying that insurers have to analyse their claims data meticulously and draw conclusions from these analyses for the purpose of risk-commensurate rating. The loss patterns of the Odra floods present an excellent opportunity to deduce loss parameters that are specific to particular areas and lines of business and which in turn can be incorporated in analyses of the loss potential and eventually in the rating process itself.

Accumulation control
Accumulation control involves a detailed analysis of concentrations of liabilities. Large accumulations can lead to major loss burdens in the case of catastrophes. Accumulation control is an important tool that enables an insurance company to define its business policy objectives – in terms of production targets, underwriting guidelines and the establishment of reserves – and to determine its reinsurance requirements. It is one of the most important tools for underwriting natural hazards successfully. Uniform standards have already be defined for earthquake and windstorm accumulation control in many countries, but there is an immense backlog of work to be cleared as far as the flood risk is concerned.

Climate change
Apart from the rise in sea levels forecast for the coming century, an increase in humidity levels as a result of higher temperatures and the resulting higher rates of evaporation will have a particularly grave effect as it will influence the amount of precipitable water as well as the convection processes in the troposphere. Generally speaking, an increase is to be expected in extreme rainfall amounts at the regional level. That has already been confirmed by the analysis of measurements in a number of regions. There is also firm evidence of seasonal changes, e.g. in Central Europe (drier summers, wetter winters). Milder winters, which are likely to occur in a warmer climate, can also have a grave effect on the flood risk. They lead to an increase in the natural sealing during the winter months as a result of increased precipitation in predominantly liquid form. Frequent low-pressure systems combined with copious precipitation produce surface run-off, which soon results in flood waves. The lack of snow cover also results in a reduced blocking effect of the usual cold high-pressure system over eastern Europe, so that winter storms can penetrate far into the continent, as it was the case several times in the 1990s. The storm surge risk will also increase on many coasts of the earth if the climatological forecasts are confirmed, as rising sea levels in concert with an increase in the storminess will increase the number of storm surges.
Of particular significance is the probable increase of the frequency of intense rainstorms as a consequence of higher summer temperatures and intensified convection processes. This will lead to more flash floods and, in particular, to more urban flooding due to excessive storm water, which already now account for similarly high flood losses as river flooding in many regions.

Risk partnership for flood prevention

Disaster preparedness and coping with disaster once it has struck only works, if the three main groups affected –the authorities, the affected population, and the insurance industry – co-operate together. They are called on to join forces and enter into a risk partnership, in order to make the most of the opportunities that present themselves. Only effective co-operation will lead to developments from which all those concerned, and in particular the flood-prone population, can benefit. Insurers and reinsurers can make a valuable contribution beyond performing their core function of indemnifying losses by making their knowledge available. They have extensive experience in the field of loss analysis and reinsurers in particular also have scientific and engineering expertise and can thus offer information and advice.

Some of the areas in which close and methodical co-operation between insurers, scientists, engineers and authorities may be expected to produce fruitful results are given in the following examples:

Generation of exposure analyses and exposure maps
The aim is not only to provide politicians or municipal authorities with planning aids. Insurers are an important link in the chain of loss minimisation. They should be involved in this work at an early stage so that their requirements can be properly considered. After all, they should be in a position to use exposure zoning for assessing and rating the risks they insure.

Loss potential analyses
Loss potential analyses, such as water depth-damage functions, must be carried out in the light of the insurers' requirements. These analyses should be conceived in such a way that they consider features specific to particular lines of business and thus provide the parties involved with a useful aid.

IT systems, Geographical Information Systems (GIS)
The data kept by scientists and users are to be as uniform as possible. IT systems should be geared to each other. In the case of the flood risk, for instance, GIS should be employed. Gearing the data and their platforms to each other will make it possible to work quickly and effectively. This means that the insurers store their liability information (portfolio data) in a GIS and can at the press of a button make use of risk-relevant exposure information provided by scientists.

Conclusions

To sum up we may say that we must reckon with more – and larger – flood events and catastrophes in the future. For this reason it is important to take appropriate steps without delay. On the one hand, the efforts that are being taken to combat climate change must be stepped up, while on the other hand we must pay more attention to flood protection and loss minimisation or prevention in the ways described above. Technical, organisational and financial measures designed to reduce the flood hazard are well-known in large numbers, and many are available. Long-term and short-term precautions play just as large a part in this as catastrophe aid and post-event measures. One thing is certain, however: flood is a subject that involves everyone, which means that everyone has to work together in combating it. Authorities, scientists and the insurance industry have clearly defined briefs. The insurance industry and the world of science and technology must join together in formulating their requirements and prepare them in such a way that the political powers can derive clearly recognisable policy options (e.g. land use restrictions) from them.

Literature

• Kron, W. (1998): Insurance aspects of river floods. In: The Oder/Odra Flood in Summer 1997. Proceedings of the European expert meeting, A. Bronstert et al. (Eds), Potsdam Institute for Climate Impact , Research Report No. 48, Potsdam.
• Loster, Th. (1999): Flood Trends and Global Change.
  (Research/RMP/june99/presentations.html).
• Munich Re (1997): Flooding and insurance, Munich Reinsurance Company.
• Munich Re (1998): Annual review of natural catastrophes 1997, Munich Reinsurance Company.