Floods are among the most frequent and severe natural disasters, posing significant challenges for businesses and communities. Increasing urbanization in flood-prone areas, coupled with climate change’s impact on rainfall patterns and rising sea levels, has intensified flood risks and potential losses.
Floods manifest in various forms, including coastal floods driven by storms or high tides, fluvial floods resulting from river overflows, and pluvial floods magnified / intensified by overwhelmed drainage systems. Each type can cause major material damages and severely disrupt operations, supply chains, and infrastructure. In 2023, the Emilia-Romagna floods in Italy and China floods both made the list of the top 10 worst global economic loss events.
Flood risk is determined by three elements: a source (e.g., rainfall or storm surge), a pathway (e.g., rivers or urban drainage systems), and a vulnerable asset. Climate change exacerbates this by shifting precipitation patterns and increasing the intensity of extreme weather events, making floods more unpredictable and severe.
Types of Floods and Their Impacts
1. Pluvial Flooding
Pluvial flooding is characterized by extreme rainfall on site and the location’s inability to absorb the water any longer. Pluvial flooding occurs when the rainfall amount exceeds the capacity of the local drainage system, causing water to quickly accumulate in both urban and rural areas.
A typical example is monsoon rains overwhelming streets and buildings in megacities such as New Delhi. The challenge lies in understanding the dynamics of rainfall intensity and its impact on drainage systems, which may already be operating near maximum capacity due to prolonged precipitation. In such cases, even a relatively moderate rainburst can trigger severe flooding.
When pluvial floods happen rapidly and with high intensity, they are referred to as flash floods. These are typically caused by heavy rainfall concentrated over a short period in a local area or nearby elevated terrain. Given their nature, flash floods are difficult to predict and to monitor, as the rapid intensification may lead to a flash flood or the terrain may absorb or diverge a flood. For instance, flash floods in Valencia in 2024 transformed streets into rivers within hours, stranding residents and disrupting transportation systems.
The unpredictability of pluvial flooding makes it especially hazardous, often giving communities little time to prepare. They also pose risks to infrastructure, such as roadways and power grids, and can cause significant economic losses.
2. Fluvial Flooding (River Floods)
Fluvial flooding occurs when rivers overflow their banks due to prolonged rainfall or snowmelt. These floods can cover vast areas, causing widespread damage to agriculture, homes, and infrastructure. A prominent example is the 2022 Lismore disaster in New South Wales (NSW), Australia, which became the largest river flood in modern Australian history. Over the span of four days, three heavy rainfall events occurred. Each rainfall would have typically resulted in moderate flooding, but their cumulative impact, particularly the final downpour—during which freezing raindrops the size of small fists fell with extraordinary force—led to catastrophic flooding.
Lismore, situated on a floodplain at the confluence of the Wilsons River and Leycester Creek, experienced the second-most expensive disaster globally for insurers in 2022 and holds the record as the most costly disaster in Australian history. Tragically, many residents were unable to afford insurance premiums and were left without coverage when disaster struck.
Recent evidence suggests significant changes in the frequency and intensity of river floods over recent decades, influenced by both climatic and regional factors. Between 1960 and 2010, river floods became more frequent in Europe and the USA, with similar trends observed in China, Brazil, and parts of Australia. Conversely, decreases have been noted in the Mediterranean and southern Australia. Climate warming over the last 40–60 years has also shifted the timing of spring floods, with peak occurrences now 1–10 days earlier per decade, depending on the location—most commonly advancing by 2–4 days per decade.
Fluvial floods disrupt transportation networks, contaminate water supplies, and destroy crops, leading to long-term economic and social challenges. While they develop more gradually than flash floods, they can last for weeks, prolonging recovery efforts and displacement for affected communities.
3. Coastal Floods
Coastal floods result from storm surges, high tides, or rising sea levels, often compounded by extreme weather events like tropical cyclones. These floods inundate low-lying coastal areas, damaging infrastructure, homes, and ecosystems. Recent Hurricane Helene from September, caused extensive coastal flooding and storm surge damage when it made landfall as a Category 4 hurricane near Perry, Florida. The storm produced sustained winds of 140 mph and a significant storm surge that devastated the Gulf Coast, particularly in Florida.
One report from CoreLogic estimated that Helene likely resulted in between $30.5 billion and $47.5 billion in losses from property damage and business interruption. Up to $17.5 billion of that range comes from damage to insured properties, while the remaining $30 million of damage represents uninsured losses.
Coastal floods can erode shorelines, destroy habitats, and disrupt local economies dependent on tourism and fishing. With rising sea levels due to climate change, the frequency and severity of coastal flooding are expected to increase, threatening millions living in coastal regions worldwide.
Key Trends Affecting Flood Risk: Climate Change
Climate change is playing a significant role in the increasing frequency and intensity of extreme weather events, particularly floods. According to scientific reports, as global temperatures rise, the hydrological cycle becomes more dynamic and unpredictable. Warmer air holds more moisture, which often leads to heavier and more intense rainfall. This accelerates the risk of flooding, as seen in numerous impactful events around the world. Additionally, the shift in weather patterns caused by climate change contributes to prolonged periods of drought in some regions, further exacerbating water-related challenges.
Key Trends Affecting Flood Risk: Rapidly Increasing Urbanization & Changes in Site Hydrology
In 1800, only two percent of the world's population lived in cities, but by 2050 more than two-thirds of the world's population are predicted to live in extensive urban areas. Urbanization reduces the ability of the land to absorb rainfall through the introduction of impermeable surfaces. These surfaces, such as roads, buildings and pavement, cause less rain to be soaked up by vegetation and instead flow straight into rivers. This results in an increase in flood risk at the surface as less water infiltrates into the ground.
These significant and often rapid changes in soil properties make it difficult to insure flood risk due to a lack of historical data in newly urbanized areas, which are needed to better model for potential flood risk.
Flood Risk in Europe
On October 31, the Valencia region of Spain experienced record-breaking rainfall and flash floods, resulting in significant casualties, widespread disruption, and substantial economic losses. This event is part of a troubling trend of frequent and intense flooding across Europe. The severe weather system responsible, known as high-altitude Isolated Depression, typically occurs in autumn when lingering summer heat at the surface interacts with sudden cold air from polar regions. This combination creates large convective clouds, triggering heavy rainfall and rapid flooding.
Experts warn that climate change is amplifying the intensity of such systems. Warmer sea temperatures and increased atmospheric moisture, fueled by global warming, contribute to heavier precipitation. According to the IPCC Sixth Assessment Report, for every 1°C rise in temperature, the atmosphere can hold 7% more moisture, leading to a higher likelihood of extreme rainfall.
In fact, in a rapid analysis on Spain, climate scientists at World Weather Attribution estimated that the rainfall in Spain is about 12% heavier and twice as likely compared to the 1.3°C cooler preindustrial climate. According to the scientists, the conclusions were well aligned with previous attribution studies done by the group on heavy rainfall in Europe, such as Storm Daniel which wreaked havoc in Greece in September 2023 before moving to Libya, where it caused catastrophic dam failures and significant loss of life.
Recent Coastal Floods in the United States
Flooding from hurricanes and heavy rainfall has become an increasingly significant threat in the United States, causing widespread damage in recent years. Hurricane Milton which struck in October 2024 as one of the strongest storms ever recorded in the North Atlantic exemplifies the dangers of coastal flooding, particularly from storm surges.
As Milton made landfall near Sarasota, water levels surged over 8 feet, inundating coastal communities. Storm surges ranging from 5 to 10 feet were recorded along Florida’s coastline, from Naples to Siesta Key, including Charlotte Harbor. The highest levels of flooding were observed in Manatee and Sarasota counties, where inundation likely approached the upper end of this range. Conversely, Tampa Bay experienced contrasting effects: blowout winds caused water levels at the northern end to drop by approximately 5 feet, while the mouth of the bay saw levels rise by 1 to 2 feet. In Naples, storm surges peaked at 5.75 feet, causing extensive flooding in the area.
Hurricane Milton’s severity also underscores the role of climate change in amplifying such events. According to the IRIS model, the likelihood of hurricanes with Milton’s intensity at landfall is approximately 40% higher in today’s climate compared to pre-industrial times, with nearly 45% of the associated losses in Florida directly linked to climate change.
Flood Events in Australia
In Australia, floods have caused widespread disruptions, particularly in New South Wales and Queensland. In early 2022, intense weather systems led to record rainfall, with some regions receiving more than a year’s worth of rain in just a few days. The impact on businesses has been severe, with many facing extensive property damage, supply chain disruptions, and operational shutdowns. For example, the Northern Rivers floods caused millions in losses for local businesses like Sunshine Sugar, while also halting production and leaving workers without jobs for weeks. Beyond financial damage, the broader business community has faced long-term challenges, including workforce displacement, reduced consumer spending, and delays in recovery efforts, all of which have had a ripple effect on local economies and communities.
These events often follow extended drought periods, creating a cycle of extremes that challenges communities and ecosystems. Australia faces increasing flood risks as climate change drives higher temperatures and more moisture in the atmosphere, intensifying precipitation and storm impacts.
Why Traditional Insurance Falls Short
Historically, private insurers have been reluctant to offer flood insurance, particularly in high risk regions, due to several barriers:
- Data Limitations: Accurate flood risk pricing is hindered by insufficient historical flood data and carriers may have to rely on outdated flood risk maps.
- Adverse Selection: Policies are often purchased by those most at risk, creating imbalance.
- Regulatory Restrictions: In some countries, government-backed programs limit private insurers’ ability to offer risk-based premiums.
As flood events become more frequent and costly, alternative solutions like parametric insurance are increasingly vital.
The Power of Parametric Insurance
Parametric flood insurance sidesteps traditional insurance hurdles by offering customized payouts based on objective, measurable triggers, such as water levels at river gauges or precipitation thresholds of weather stations. This eliminates the need for lengthy loss adjustment processes, providing businesses with rapid financial relief to recover from disasters.
Descartes Underwriting utilizes diverse data sources to customize parametric solutions for clients. Depending on the location, these include public river gauges, gridded precipitation datasets, or on-site sensors. For example, Descartes’ river gauge-based solutions offer seamless protection by tracking water levels and triggering payouts when thresholds are surpassed during a confirmed flood event.
Case Study Leveraging River Gauge Data: Parametric Secures Operations for a Chemical Company
An industrial company in Pennsylvania, situated near a major river, faces recurring flood risks that could disrupt operations. To address this, the company adopts Descartes' parametric flood insurance solution, leveraging a nearby public river gauge as the index. The solution is designed to trigger rapid payouts if water levels at the selected gauge surpass a pre-set threshold during a confirmed flood event. Using historical loss data and gauge readings, Descartes provides competitive pricing and capacity tailored to the company's risk profile. In the event of a flood, the immediate payout enables the company to quickly recover, reducing financial and operational impacts and ensuring business continuity.
Building Resilience Against Future Flood Risks
As climate change continues to reshape flood patterns, innovative insurance solutions like Descartes’ parametric policies are essential to protect businesses and communities. By harnessing cutting-edge technology and data-driven models, Descartes offers flexible and efficient coverage tailored to various flood scenarios, empowering clients to face an uncertain future with confidence.
For more information on how Descartes can support your business with parametric flood solutions, reach out to our team today.
