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29 Sep 17 02:45

On 29 August, 2017, as Hurricane Harvey was still pounding the city of Houston, Texas, with an unprecedented1000 mm of rainfall, the Indian city of Mumbai, situated by the Arabian Sea, was heading towards catastrophic floods, following incessant rains  for a few hours. In July 2005, Mumbai experienced a similar deluge. Although on 29 August 2017, Mumbai recorded about a third of rainfall (330 mm)  than that of July 27, 2005, it was enough for the streets to turn into rivulets. In 2005, the metropolis had recorded similar amounts of rainfall (944 mm) as Houston was recording in 2017. The fourth largest city in the U.S. and the second largest metropolis in India were facing repercussions of inadequate urban planning that was being outpaced by economic growth, with the climate change factor now beginning to trigger such extreme weather events.

India's major cities are going through a unique paradox of economic prosperity and increasing vulnerability to natural catastrophes such as floods. These cities are home to almost 40% of the country's population, and it is estimated that this number will go up to 60 % (of the population) by 2050. Over the past two decades, major Indian urban centers have suffered urban and flash floods. Urban floods in India have been increasing, with at least one major Indian city getting hit almost every year. A few have suffered twice in the last decade. The most recent floods have been in Mumbai (Maharashtra) and Bangalore (Karnataka) in 2017, Chennai (Tamil Nadu) in 2015, and Srinagar (Jammu & Kashmir) in 2014.

Flooding in urban areas have been brought about by intense changes in land use due to high-density developments, which in turn has increased the spread of impervious areas. For example, in Bangalore, the built-up area as a percentage of the total area shot up from 8 % in 1973 to 45 % in 2007 – that is nearly six times rise in 34 years.

The gap in development pace and sufficient drainage infrastructure has also widened considerably during the last three decades. Most drainage infrastructure were designed and constructed as and when the need arose during the phase of expansion of the cities. The inundation in urban landscapes is the result of increased runoff and insufficient capacity of drains to channel the runoff back into the natural systems. 


The vulnerability of other Asian cities to floods is not vastly different from that of Indian cities. Floods in Bangkok (Thailand), the Pearl River Delta area and Shanghai (China), and Jakarta (Indonesia), for example, can potentially affect 7 million, 12 million, 11 million and 10 million people, respectively. This is as per a 2014 Swiss Re study ('Mind the Risk') of cities across the globe that are under threat from natural disasters.

While discussions and debates around the causes of such catastrophic floods abound, what is not discussed enough is the impact of these floods on urban societies and ways to develop solutions to minimize this impact. While economic losses, consequent upon high growth rate, are increasing in emerging economies, insurance penetration in these regions is not able to catch up, primarily due to low awareness – also, another reason why there are less discussions around impact of floods and ways to address it. This means that society – the people, the businesses and the systems – is taking much longer to recuperate after an extreme event, and sometimes may not even recover completely. The Protection Gap (difference between insured and uninsured losses) is quite high. Insurance covers only about 5% of economic losses from floods in Asian high growth markets.

Impact of floods can be mitigated through an integrated approach to disaster risk management, which includes risk assessment, prevention and mitigation, and response and recovery. Comprehensive developmental planning with engineering measures can help to alleviate and prevent significant part of the flood risks. After implementing preventive measures and risk controls, the financial instruments such as insurance effectively address the remaining risk. Innovative insurance products, such as parametric insurance, are particularly valuable for response and recovery operation as they are transparent, efficient, and quick in payouts. Parametric insurance does not compensate for the full loss, but based on parametric triggers (involving parameters directly related to the risk), payouts are made to the protection buyer.

The (Re) Insurance industry has been helping communities globally during the final recovery phase of the disaster management cycle by providing risk financing or risk transfer options. Today, the Insurance industry can address specific needs of various sections of the society and the economy with bespoke, need-specific, and affordable insurance products. For example, Flood Re, a consortium comprising the government of U.K. and several insurers/reinsurers, including Swiss Re, provides affordable home insurance cover for floods to over 350,000 UK home-owners (as of April, 2016) at risk of flood. This collaboration between the government of U.K. and the insurance industry is a good model for closing the flood Protection Gap.

Last year, Swiss Re entered into a reinsurance protection scheme with the government of Heilongjiang Province, China, covering 28 economically backward counties in this North-east China province. The total coverage for is up to RMB 2.32 billion (or USD 348 million). This solution determines insurance payouts based on triggers from satellite and meteorological data provided by e-GEOS, a global satellite earth observation data and service provider. Compared to traditional insurance, this program enables a greater efficiency in payments, and therefore, strengthens the government's capability in emergency management. 

These insurance solutions can also help other Asian countries such as India and Bangladesh, which are highly prone to floods. The primary challenges in realizing the immense insurance potential in these markets are: a lack of awareness about the wide array of insurance benefits and unavailability of usable data to measure losses and design effective mitigation solutions. The role of policy makers, however, will be critical in developing an insurance risk culture and a well-functioning insurance market in the region. In the agriculture sector, the Indian government-supported Pradhan Mantri Fasal Bima Yojana (PMFBY) crop insurance scheme, which aims to give coverage for 40% of crop area by 2017-18 and ramp it up further, has already seen increase in premiums (borne by the Center and State governments), which means that more substantive payouts will be made to farmers during the bad season. Technology can be a catalyst to create insurance awareness, to collect exposure and loss data systematically, and to develop simple and affordable insurance products for the end-customers.

Although a frequent natural disaster causing considerable economic damages across the world, floods were often perceived as uninsurable and left to the governments to take care of. With innovative insurance and risk transfer mechanisms, some of which have been exemplified in this article, this is changing. While engineering (physical/structural) prevention and mitigation are critical for developing well-functioning flood insurance markets in the long-run, innovative risk transfer solutions powered by technology and better risk data can overcome many insurance challenges in the short run, especially in developing regions to increase financial resilience.


Category: Climate/natural disasters: Climate change, Floods/storms

Location: Bangalore, Karnataka, India


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