07/09/2017 – Hurricane Harvey’s floods have had a devastating impact on Houston and other parts of the United States. With Hurricane Irma, the biggest ever Atlantic storm, wreaking havoc across the Caribbean, August and September 2017 are likely to be remembered as one of the most significant periods of flood devastation in recent years. From the flooding-related mudslide that killed more than a 1,000 people in Sierra Leone, to monsoon-related flooding that has ravaged India, Bangladesh and Nepal, to the “1-in-500 year” storm that has devastated one of the largest metropolitan areas in the United States – few periods of time have so obviously illustrated the significant potential of floods to disrupt people’s lives.
Flooding is one of the most common, wide-reaching and destructive natural perils, affecting on average about 250 million people around the world each year according to the UN Office for Disaster Risk Reduction. The continued accumulation of people and assets in floodplains and along coasts, the changes to land-use that accompany population growth and the expected impact of climate change on the intensity of storm and precipitation events all point to an increasing risk of ever more devastating floods in the future.
While still early to predict, some estimates suggest that the financial cost of Hurricane Harvey will exceed the USD 68 billion in overall losses caused by Hurricane Sandy in 2012 and potentially even the USD 125 billion in overall losses that resulted from Hurricane Katrina in 2005, the second costliest natural catastrophe event in the world since at least 1980, if not ever. Unfortunately, the vast majority of these losses will be borne by households and small businesses – and ultimately taxpayers – given the low level of insurance coverage for flood damages and losses in the United States.
No country can claim to have implemented the optimal approach to managing this complex policy challenge. OECD work on the financial management of flood risk has identified a number of ways that policy makers can improve the management of the financial implications of floods, including:
- Greater investment into – and use of – flood maps and models to understand the potential impacts of flooding and the effectiveness of protective investments, both for events that have occurred and those that may occur in the context of a changing climate.
- Better targeting of government regulation, investment and financial assistance towards reducing the level of risk, particularly in communities where the level of exposure makes insurance unviable.
- Enhancing the contribution of (re)insurance and capital markets to managing the financial impacts of flood events and encouraging risk reduction.
- Improved coordination in using the range of policy tools that are available for managing flood risk and encouraging risk reduction across all levels of government and segments of society.
Catastrophic flood events such as those witnessed in the past weeks reinforce the need for more effective management of the financial impacts of flood events. There are few more promising opportunities to drive positive change than the aftermath of a catastrophic event.