Here Comes the Rain Again, but 75% of Flood Risks Remain Uninsured

The rains keep coming, as flood economic loss estimates from Swiss Re Group show, and the results are like a parody of a joke: everyone keeps talking about the weather but no one does anything about it.

According to the reinsurance and research firm, “global economic losses from floods amounted to USD 82 billion, yet insured losses stood at slightly more than USD 20 billion, indicating a large protection gap.” Those were the result of 50 severe flood events around the world.

Flood damage represented 31% of global economic losses from natural disasters—only two percentage points less than tropical cyclones, a category that includes cyclones, hurricanes, and typhoons. Floods affect almost a third of the world’s population.

Last year had the fourth highest record for global economic loss. “This continues the long-term trend of insured losses increasing by an average of 5-7% annually worldwide,” the report said. “While Hurricane Ida was the costliest single natural disaster in 2021, secondary peril events once again accounted for the majority of insured losses from natural catastrophes over the year.”

The protection gap, or the difference between total and insured losses, varies by country. From 2011 to 2021 in the U.S., there were total losses of $995.4 billion with insured losses of $560.1 billion, leaving a gap of $435.4 billion. Floods are the most common form of natural disaster in the country, causing the greatest number of lives lost and the highest property damage.

“Climate change is noticeable in the US with rising temperatures and more extreme weather events, such as heavy rainstorms,” Swiss Re wrote. “In 2021, Hurricane Ida resulted in major flash flooding as it moved into the Northeast after causing significant damage in Louisiana. The National Weather Service issued flash flood emergencies for northeast New Jersey and New York City. In Central Park in New York City, 80 mm of rainfall fell in one hour, exceeding the previous record by 50%.”

While much of the damage is resident, a massive amount is commercial real estate. A December 2021 report from First Street Foundation and commercial engineering firm Arup estimated that US businesses will collectively lose 3.1 million days of operation due to flooding in 2022 that is expected to cause “severe structural damage.”

April 1, 2022 was the deadline for the updated FEMA flood insurance risk rating and all renewals will use the new data in setting policy prices.

“Because technology is getting so much better and the carriers and FEMA can run much better predictive models, they are better at pricing,” Carter Bumgardner, a producer at Graham Company, one of the largest insurance brokers in the US, told GlobeSt.com in November 2021. “Whether that’s going up or down depends on the risk itself,” Bumgardner tells GlobeSt.com. “I believe over 70% of insureds that buy a national flood insurance policy [will see] their rates for that specific policy go up.”