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Investing in nature to help mitigate flood risk

More governments can integrate nature-based solutions to manage extreme weather events

In Australia, parts of New South Wales and Queensland were hit by severe flooding in March 2021, resulting in overflowing rivers and dams, destroyed homes and around 18,000 people evacuated. Losses have already surpassed AUD500m and are likely to develop further.

Whilst some called it a "one-in-a-100-year event", in many places the return periods were closer to 10 to 50 year averages1.  Reflecting on the 2011 Queensland floods, more than 2.5 million people were affected and more than 78% of the state declared a disaster zone.

With an increased frequency and severity of extreme weather events, the world must learn from the past and continue to prepare for more such occurrences. In particular, when it comes to flood management.

Australia is not alone when it comes to suffering significant economic losses from extreme weather and flooding. The UN Office of Disaster Risk Reduction 2019 annual report noted that the world remains ill-prepared to face disasters. Beyond the deaths and injuries, direct economic losses caused by climate-related natural hazards in 2019 were estimated at USD232 billion2.

Taking a more sustainable approach to flood management

Traditional grey flood management systems can be optimised by green or nature-based solutions (NBS). Nature provides vast tools to mitigate the impacts of severe water flow and flooding, such as mangroves, wetlands and saltmarshes, coral reefs and riparian buffers. Rivers also have their own systems of flood management, organically expanding and contracting on flood plains, which has become more confined by urbanisation.

Canada is another country that suffers from severe flooding. In 2019, thousands of people in eastern Canada were evacuated from their homes after heavy rains and melting snow led to catastrophic floods3. In 2017, precipitation over the Ottawa River Basin was 174% of normal values, and the flooding resulted in more than USD200m in insured damage and the evacuation of nearly 850 people from the capital city of Ottawa. However, without the protective buffer of the Goulbourn wetland complex, the impact would have been 10% higher'4 .

Research has found that wetlands, if maintained in their natural state, can substantially reduce flood damage to surrounding properties. Another Canadian study found that if wetlands at an urban pilot site were maintained in their natural state, the cost of flood damages would be reduced by 38% lower than if the wetlands had been converted for agricultural development5.

The effectiveness of wetlands has also been confirmed by research done in Australia, determining that wetlands have saved Australia AUD27 billion in storm damage since the 1970s6.

There is also an opportunity for municipalities to invest in natural assets and sustainable construction alongside traditional infrastructure, which in turn, creates jobs, economic stability and more resilient communities. Public private partnerships are key for successful implementation. Environmental and engineering organizations have the necessary skills to assess the value of natural assets and the benefits they provide. This upfront evaluation work is critical to enable decision makers to understand the true costs and benefits. For example, a city may see value in developing wetlands to benefit the expanding needs of urban homeowners and/or businesses. However, disrupting the natural systems could create more flood risk and ongoing costs for constituents in the long run.

Insurance to protect communities and enable more sustainable flood management

Governments can incorporate nature-based solutions in their plans to deal with flooding and include these natural assets in their public asset portfolios, which are subsequently insured and actively managed.

Nature has proven its ability to reduce the impacts of weather-related disasters and natural catastrophes, so as weather events become more severe and frequent, investing in nature can be one of the most effective climate adaptation measures. Beyond the disaster mitigation benefits, nature provides many other eco-services that benefit communities and economies – from flood and storm surge buffers, clean air and water, to tourism and recreation. Additionally, properly managed natural assets can become more effective at providing these services over time, thereby increasing their value. Hence, we should value and protect these natural assets and services in the same way we value, protect and insure other property, infrastructure and health services.

Insurance can protect the effectiveness of a nature-based solution such as wetlands – with traditional insurance covers against drought, storm and flood damage. Swiss Re has also successfully delivered parametric, or index-based insurance solutions to help fund restoration and conservation activity – optimising limited government budgets allocated to environmental planning and conservation. Index-based solutions provide prompt payouts after an event, which facilitate fast recovery action to support nature's self-healing capabilities.

Insurance can also protect the revenue streams and delivery of eco-services. Like when a business has to cease trading due to flood damage, nature also ceases to deliver tourism and recreational services, clean water, and carbon capture (just to name a few examples) when damaged.

Whilst insurance is traditionally seen as a mechanism to compensate, and absorb the shocks and costs of the unexpected, it also helps to remove risk, and can make investment more attractive and accelerate projects. Hence, insurers can play an important role in enabling more nature-based solutions by de-risking the investment required and providing cover for residual risk. Terraforming and manipulation of the natural environment to enhance its effectiveness can benefit from standard engineering covers, to ensure projects are completed on time, on budget and with the appropriate assurances and liability protections.  

Government funds and investment can be directed into actions that conserve and enhance our natural assets and eco-services, which in turn creates more economic prosperity and improves our quality of life. Nature-based solutions and green infrastructure projects can create jobs to support economic recovery, as well as build resilience to climate change risks. The result of these projects also provides more green space, improved air and water quality and less adverse impact from catastrophic activity – all which make for healthier and safer communities.

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