Rainstorms, rivers and rising tides: The financials of future flood risk

Through history, many cultures across the world have associated flooding with the collapse of civilisation. From the Epic of Gilgamesh to Noah’s Ark, ancient flood myths serve a timeless warning against underestimating the threat of rising tides, swollen rivers and heavy rains. The recent, tragic events in Germany and Belgium are a shocking confirmation of the danger, and a stark reminder that the climate crisis is not simply warming the planet. Alongside doubling efforts to reduce carbon emissions, we must also prepare for the consequences of the changing climate.

Flooding events can be devastating. In 2019, they caused US$45.9 billion in economic losses and nearly 4,500 deaths worldwide.^[1] Floods are most often caused by overflowing rivers, but also by intense prolonged rain – as in Belgium and Germany – and surge storms in coastal areas. As climate change affects precipitation intensity and patterns, scientists are trying to understand what awaits us in the future. And though in southern Europe floods are expected to decrease over the coming years, most of the rest of the continent will endure increasingly frequent and severe precipitation events.^[2]

And climate change increases flooding risk across the world, from thunderstorms in the Southern Great Plains of America^[3] to the rapidly retreating glaciers of the Himalayas. For the latter, researchers estimate a threefold increase in flooding risk to communities and infrastructure located downstream from the glaciers.^[4] Currently, 31 million people live in river delta areas that are particularly at risk from surge storms. Globally, the World Bank estimates that 1.47 billion people are directly exposed to the risk of intense flooding. One-third of that number also live below the poverty line.^[5] As flooding events become more common, the global economic cost of property damage will rise. Estimates suggest that the total bill for river flooding events could soon exceed US$500 billion, with a further US$200 billion of costs attached to coastal flooding.^[6]

Although South-East Asian countries are most exposed,^[7] Western nations cannot afford to ignore the problem. In the UK, the floods of 2015/16 cost the country £1.6 billion, while those in 2019/20 racked up £78 million in damages. The UK Government has since estimated that flood defence schemes prevented £2.1 billion of additional damage.^[8] In England and Wales alone, areas at flood risk host over 4 million people and property worth over £200 billion.^[9] In the US, almost US$200 billion in damages was caused by flooding between 1988 and 2017. One-third of that total has been linked to the impact of climate change.^[10] According to insurance firm Munich Re, the 14.6 million properties in areas at substantial risk of flooding represent “the number one natural peril in the US, even before wildfire and storm.”^[11] In the globalised economy, the impact of flooding events can be felt across the world. Flood damages in China are expected to rise by 80% in the next 20 years, costing up to US$380 billion. The worldwide nature of modern trade and supply chains, combined with China’s ascendant geopolitical influence, means the knock-on losses to the US economy alone could total US$170 billion.^[12]

Regional vulnerability to flooding can have far reaching consequences, too. Stanford University researchers estimate that 4 million homes built on US floodplains are considerably overvalued due to risk unawareness and lack of disclosure laws in some States. That these homes could be overvalued by US$44 billion represents a genuine threat to the stability of the American real estate market.^[13] Meanwhile, only 15% of American homeowners have a flood insurance policy.^[14] Globally, there is evidence that flood risk is inconsistently reflected in valuation processes.^[15] New techniques are being developed to understand its potential impact on transactions^[16] and insurance.

The magnitude of the threat posed by flooding highlights the importance of investing in sustainable and effective defence strategies. This amounts to much more than building emergency water barriers. Clever flood mitigation understands the flow of water across the entire basin and works with natural and artificial elements to prevent and direct overflowing. For example, the presence of trees in flood plains can reduce the intensity of the flood in downstream urban areas,^[17] and artificial dams can also reduce the risk of flooding for communities downstream.^[18] And investing in flood protection is extremely beneficial: the World Resource Institute estimates that every dollar spent on flood protection infrastructure in India can save US$248 in damages.^[19]

A regional and holistic approach to flood protection is important. In the San Francisco Bay Area, researchers have studied how building a seawall on one shoreline could cause over US$700 million of damages in other areas. They argue that non-conventional measures, such as directing overflowing water towards specific areas of land, are more sustainable.^[20] The role of nature-based solutions is often overlooked, especially at the large scale. It’s a costly oversight. Research suggests, for example, that US$65 billion of coastal flood damages would occur annually across the globe without the protection of mangroves.^[21] Coral reefs also reduce flooding risk and effectively provide an economic service. In the US alone, reefs measuring some 300km in length prevent damage to property up to US$5.3 billion.^[22] Sometimes, the simple conservation of natural habitats can have benefits in terms of flood prevention. American researchers calculate that spending one dollar for the natural conservation of floodplains can save five dollars in potential damage avoided.^[23]

The latest IPCC report on climate noted that human activity has caused a rise in heavy precipitation events in most regions where measurable data exists. For thousands of years, fearful people have blamed wrathful gods for devastation wrought by flood waters. Now we know the truth: these catastrophes, which every year claim thousands of lives and cost billions of dollars, are man-made.