Flooding: more likely, more extreme and more unpredictable

• Unprecedented weather patterns are challenging the flood risk landscape, which was previously well defined by government and historic records 
• Many flood damages occur outside of mapped river floodplains, and companies outside larger hazard zones can still be affected by small rivers or streams 
  
• Flood risk is amplified by ‘missiles’, such as cars and tree trunks, and the hazards involved in resuming operations
  
• Businesses should draw up contingency plans that include early warning systems, to reduce losses, avoid being overwhelmed, and enable them to get back into operation quickly

The rain began falling across Europe on July 12. The storm started over the United Kingdom and swept east across France, Belgium, the Netherlands, and then Germany. There it stalled for two days. During the pause, more than 20 centimeters (7.9 inches) of rain fell in east Belgium and 15 centimeters – a month’s worth – in 24 hours in the west of Germany.

Streams swelled, burst their banks and then the flash flooding started. Cars and houses were washed away; streets were smashed and covered in mud and, as the rain continued to fall, it triggered massive landslides so intense that part of the historic castle in Erfstadt, near Cologne, was carried away.

At least 220 people died in Germany and Belgium. The damage has been estimated at up to €7bn in insured losses [1]. The New York Times noted that affected regions may not have seen rainfall of this magnitude in the last 1,000 years.

Not long after, heavy flooding hit central China with the city of Zhengzhou, which produces half of the world’s iPhones, receiving over 61.7 centimetres (two feet) over three days – more than as much as falls in a typical year. More than 300 people died, 9,000 homes were damaged, 13 million people were affected, and the world was left with the image of a carriage full of people in an underground train growing desperate as floodwaters gradually rise towards the ceiling. It was a storm to be expected once in a thousand years, the Zhengzhou weather bureau said.

Then, at the end of August, Hurricane Ida made landfall in Louisiana, USA, before travelling north, where its remnants caused record flooding on the north-east coast of the country, leaving 50 people dead and prompting the governors of New York and New Jersey to declare a state of emergency. Overall insured losses are estimated at US$30-US$40bn.

Flood catastrophes result from a complex web of climatic, hydrological, and social factors. However, scientists were quick to see the fingerprint of climate change in the disasters. After all, for years, they have warned climate change will mean more flooding in China, Europe and elsewhere. For every degree Celsius of warming, the atmosphere can hold about 7% more moisture [2], which can supercharge rainstorms.

“The flood risk landscape, previously well defined by historical and government flood maps, and to some extent local knowledge, is being challenged with erratic and unprecedented weather patterns,” says Boris Gao, Senior Risk Consultant at Allianz Global Corporate & Specialty (AGCS) and based in Shanghai. “What we accepted as ‘normal’ is being challenged by new realities of climate change, rapid urbanization and human development. It is creating specific new risks for companies.” 

As if to underline Gao’s point, the latest United Nations’ Intergovernmental Panel on Climate Change (IPCC) report was released shortly after the floods. It made clear that this year’s burst of extreme weather results from rising average temperatures. Disasters, such as the recent floods, will become even more severe as the water cycle continues to intensify as the planet warms. Each fraction of warming will bring greater rainfall, higher rises in sea levels and more intense droughts and extreme wildfires.

Thomas Heintz, Property Risk Consultant at AGCS, notes that floods damages can also occur outside mapped river floodplains. “The damage picture of the recent European flooding is likely to be similar, with companies outside larger hazard zones but close to small rivers or even streams affected by massive flooding,” says Heintz. And the losses suffered by the victims of flash flooding are often higher than those incurred along rivers, largely because of the unpredictable nature of flash floods.

Sitting 7,000 kilometers away in Chicago in the United States, Thomas Varney can only agree. Commenting after yet another unprecedented fire season, the Allianz Risk Consultancy Regional Manager for North America can readily cast his memory back to many recent floods.

“Looking at Europe, it immediately reminded me of Hurricane Harvey,” Varney says. “You drop that much water in a short time on any place in the world, and it will be flooded incredibly quickly.” 

Hurricane Harvey was a devastating Category 4 hurricane that made landfall on Texas and Louisiana in August 2017, causing catastrophic flooding and more than 100 deaths. Over four days, more than one meter (40 inches) of rain fell as the system slowly meandered over eastern Texas, causing unprecedented flooding and laying the city of Houston lame. It remains the most significant tropical cyclone rainfall event in United States history, both in scope and peak rainfall amounts, since reliable rainfall records began around the 1880s.

But record rainfall and flash floods are only part of the risk picture. “Flood depths and rainfall levels get widely reported, but other contributory factors such as the speed of the flood and flood ‘missiles’ – like cars, tree trunks or household appliances – ramp up the potential risk,” says Carina Wichert, Catastrophe Risk Analyst at AGCS.

Varney recommends that companies prepare for such natural events with a flood contingency plan, also known as a business continuity plan, to reduce potential losses. “Current events show how important it is also to think about business continuity planning,” Varney comments.

A business continuity plan should consist of the following: 

• list responsibilities and accountabilities in the event of an emergency 
  
• list damage restoration contractors, machinery manufacturers, supply engineering and other key providers 
  
• contact information for utility contractors  
  
• clarity on where to move critical supplies, equipment or records to higher ground very quickly in the event of an emergency 
  
• identification of alternative access points to the site 
• where relevant, temporary contingency options for manufacturing, either in-house or via contract manufacturing by outside vendors  
• continuity of operations planning must be prepared in advance and revised regularly. 

Find out more about business continuity planning at Scenario planning for future disruptions.

Many companies in western Germany were shocked to discover that their emergency plans were quickly overwhelmed in the face of the masses of water, says Juergen Wiemann, Regional Head of Property at AGCS, Germany. “Our risk engineers recommend that all companies use early warning systems and draw up a flood contingency plan in order to reduce potential losses and be adequately prepared for extreme events.”

It is not possible to make all sites equally resilient and measures should be weighed up against risk exposure such as geographical location and the risk of natural disasters, along with the importance of the site for value creation and its place in the supply chain.

As well as sandbags and other physical barriers, flood mitigation methods could include securing empty containers that might be washed away, the reinforcement of roofs, especially in corner and edge areas, to dissipate the acting storm forces, and the fixing of roof superstructures, such as solar panels.

Yet, Heintz adds that companies are often reluctant to make the effort of creating a business continuity plan. “However, there are always good examples of clients who can pull this plan out of the bag in the event of a loss and thus have a decisive speed advantage in getting back into operation quickly.”

Business continuity planning for crisis events – and floods are just one scenario among several – must be prepared in advance and revised regularly.

Once an event has occurred, business owners need to react quickly to ensure the interruption remains minimal, explains Michael Specht, Head of Field Adjusting, Energy & Construction, Central and Eastern Europe, at AGCS.

“First, it is important to shut down electronic supplies and prevent runoff of pollutant-containing liquids so that any heavy metals or oils do not get into the groundwater. It is also important to secure and store important items and preserve machinery and production equipment. Important documents should also be secured.”

The second step, and a critical one for the later insurance claim, is to inspect and record the damage with the insurance expert and take initial drying measures in the production halls.

Flooding is always an exceptional situation entailing increased risks during recommissioning. Machinery and equipment – primarily high-value and production-critical equipment – must be cleaned and dried comprehensively. Electrical equipment should be inspected before being switched on and repaired if necessary to prevent short circuits and subsequent ignition.

Any debris from the interior and exterior floor inlets, gutters, downspouts and catch basins must also be removed. Ultimately, the safety equipment must be returned to service as quickly as possible, and ignition sources must be eliminated to avoid fire.

• US$1trn estimated flood damages worldwide since 1980, only 12% of which were insured [3] 
• 181% increase in annual average reported flood events since 1980 [4]
  
• 2.2bn people live in locations expected to experience inundation during a one-in-a-hundred year flood event [5]
  
• 25 new countries could be added to the 32 already experiencing increasing floods by 2030 as a result of climate and demographic change [6]
  

One of the questions arising with an increase in extreme weather events is whether companies should increase their insurance or if insurance companies will have to increase their premiums. Wiemann says that, in general, companies are better insured against natural hazards than private households – in Germany, for example, only about 46% of households are insured against floods and heavy rain. Usually, classic property insurance for companies also includes coverage against natural hazards.

“As an insurer, we have to expect increasing exposure from flooding in the future, especially after heavy rain,” he says. “In our estimation, this will also have an impact on capacity allocation. Customers who convince us with suitable risk management concepts will have advantages when purchasing insurance cover.”

He explains that the premium for natural hazards insurance depends on individual risk, coverage and the customer’s property contribution. Other relevant criteria are the location of the risk, protection concepts, vulnerability of insured property, precautionary measures for business continuity management and maintaining/resuming operations after a loss event.

“The latest catastrophe reports on weather extremes around the globe are an overdue wake-up call,” says Wiemann. “Insurers and their corporate clients must prepare themselves for the fact that previous once-in-a-century events may well occur more frequently in the coming decades. Climate change is a reality.”

Floods are just one example of weather extremes that businesses must be prepared for – heavy rain, drought and extreme cold can also take their toll. AGCS can help clients evaluate their emergency plans as part of its preventive loss prevention consulting services and recommend improvements where necessary. AGCS also offers a valuable Flood Checklist that provides tips, actions and advice to be undertaken before, during and after a flood.