Weather related natural catastrophes are occurring with greater frequency and intensity worldwide, so countries must face the challenge of meeting dramatic increases in associated costs. However, according to a paper published in CIWEM’s Journal of Flood Risk Management, these costs cannot be borne by a national insurance industry alone, so the financial burden must be distributed globally and among different potential carriers of risk.

It is likely that climate change has intensified the monsoon rains triggering the current floods in Queensland as a warmer climate leads to more evaporation from land and oceans, more moisture in the atmosphere and stronger weather patterns. It is estimated that these floods will cost Australia in excess of £3billion. According to the paper’s author, such large losses can only be met through an integrated course of action taken by the state; the people and enterprises affected; and the financial sector, in particular the insurance industry.

The paper advocates a system that compromises between the extremes of fully obligatory and fully voluntary insurance cover. It must be based on risk-adequate premiums that are cross-subsidised to some extent to make them affordable but are none the less acceptable to a vast majority. Society must understand that using tax revenue for the purposes of relief is just subsidisation, and of the more expensive kind as losses always cost more that precautions.

At the same time, loss prevention measures must be enforced, the most important being the strict prohibition of building on high risk areas. The state should also restrict post-disaster relief payments to those who are not insurable but have otherwise contributed to their own protection such as building in an appropriate manner and controlling exposure of their valuables. And insurance and reinsurance companies must be prepared to pay large amounts of money after major events, with money available quickly and not placed in long-term investments.

The author states: “We will never be able to prevent huge floods and their losses. But we can prevent great flood catastrophes if we are willing to tackle the risk in a joint effort involving governments and the people, and if we are sufficiently prepared for the residual risk from rare events by involving the finance industry.”

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Source: CIWEM Media and Marketing Manager

The Chartered Institution of Water and Environmental Management ( CIWEM ) is an independent professional body and a registered charity, advancing the science and practice of water and environmental management for a clean, green and sustainable world

‘Flood insurance: from clients to global financial markets’ by Wolfgang Kron, Geo Risks Research, Munich Reinsurance Company in Germany, is published in CIWEM’s Journal of Flood Risk Management: A Collection of Editor’s Choice Papers. See for more information

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