Disasters present a broad range of human, social, financial, economic and environmental impacts, with potentially long-lasting, multi-generational effects. The financial management of these impacts is a key challenge for individuals and governments in developed and developing countries. G20 Finance Ministers and Central Bank Governors and APEC Finance Ministers have recognised the importance and priority of disaster risk management strategies and, in particular, disaster risk assessment and risk financing.

Flooding is one of the most common, widespread and destructive natural perils, affecting approximately 250 million people and causing USD 40 billion in losses on an annual basis. The increasing accumulation of assets in floodplains and coastal zones, combined with the expected impacts of climate change on precipitation patterns and sea levels, are likely to lead to increasing losses in the future. As a result, significant policy attention is being focussed on finding ways to effectively manage the financial impacts of flood risk, considering the roles of investments in risk reduction as well as mechanisms for transferring flood risk. Insurance and other risk transfer tools can make an important contribution to the financial management of flood risk by spreading the risk across domestic and international (re)insurance and capital markets and reducing the share of losses absorbed by households, businesses and governments.

This chapter provides an introduction to the evolving nature of flood risk and the implications for the financial management of that risk. It also provides an overview of the structure of this report.

This chapter of the report provides an overview of trends in the occurrence of floods, including the potential for climate change to impact the frequency and intensity of floods. This is followed by an examination of trends in the economic impact of floods, including direct and indirect losses, disruptions to economic activity as well as the impact of insurance in reducing the economic impacts of natural disasters such as floods.

This chapter provides an overview of insurance arrangements for covering flood risk across countries, including the role of private insurance markets and governments in providing coverage, the form of insurance coverage available, and the level of coverage. It identifies the significant “financial protection” gap that exists for flood risk and outlines the factors that make flood risk a particularly difficult peril to cover.

This chapter provides an overview of possible approaches to improving the insurability of flood and their relative effectiveness based on the experience of many countries. This includes improvements in land-use planning, investments in risk reduction at the community and household levels as well as efforts to improve understanding of flood risk and the need for financial protection. The role of premium subsidies in encouraging demand for flood insurance is also examined, including some of the challenges in eliminating such subsidies over time.

This chapter provides an overview of the potential fiscal costs of floods and approaches to managing those costs, including ways to minimise the costs to the public sector for providing compensation and public insurance as well as mechanisms for transferring public sector risk to insurance and capital markets.

This chapter provides a summary of the main recommendations in the report for the purposes of designing a disaster risk financing strategy for the financial management of flood risk.