Floods continue to be one of the costliest natural hazards, and they are more and more exacerbated by climate change.[1] Over 40% of company locations within MSCI GeoSpatial Asset Intelligence coverage are affected by at least one of the three different flood types: pluvial flooding (from extreme rainfall), fluvial flooding (from rivers overflowing their banks) and coastal flooding (from high tidal water and storm surges). For financial institutions, it is becoming increasingly important to monitor flood-risk exposure and the associated financial impacts. In this blog post, we highlight how flood-risk exposure and flood damages differ between the flood types and assess what is needed to accurately address flooding when assessing financial risk.
Understanding different flood types
Exposure to flood types varies across different regions. For example, pluvial flooding — also known as surface flooding — occurs when rainfall exceeds the local water-infiltration capacity of the ground. As a result, assets don’t need to be near rivers or coasts to be affected. The relative ubiquity of this flood type is evident in that more than a third (~37%) of all assets in the MSCI GeoSpatial Asset Intelligence dataset have at least a 0.1% annual probability to be affected by pluvial flooding.[2] By contrast, only around 7% and 5% of these assets face the same likelihood of exposure to fluvial or coastal flooding, respectively. Despite affecting more assets, however, pluvial floods tend to cause shallower flood depths than fluvial or coastal floods. Pluvial floods therefore commonly result in less damage and a lower chance of business interruption.
Flood exposure by continent and flood type
Like pluvial flooding, fluvial flooding can result from extreme rainfall, but also from snowmelt in upstream regions. Put simply, the extent of inundation from fluvial flooding is a function of flood-event magnitude, the presence and height of flood-protection measures and local topography. Low-elevation areas that channel water flow can mean that even assets located hundreds of meters away from rivers could be exposed to fluvial flooding. Accurate elevation data is therefore a key component in assessing exposure to floods.
Spatial distribution of fluvial-flood hazard
Coastal flooding occurs when high tides combine with stormy conditions, driving ocean waters inland (known as a storm surge). A continued rise in sea levels means that these conditions will become more likely in the future, even in low-warming climate-change scenarios.[3] Coastal floods are not limited, however, to seafront properties and harbors. Storm surges can drive flood waters up tidal estuaries for several kilometers causing unexpected damages. Calculating the likelihood of damages from all three flood perils at any given location is therefore critical for assessing the potential financial impact.
Other contributing factors
Regional and sectoral differences in building materials or construction standards mean that the damage caused by flood events can vary significantly. After factoring in these and other differences, we looked at the distribution of flood-related asset damages. Among exposed assets, in extreme cases potential damages exceeded 50% of the asset value for all flood types. The range of commonly occurring (i.e., 25th- to 75th-percentile) asset damages was largest for fluvial-flood events (~3% to ~32%), compared to coastal-flood events (~1% to ~19%) and pluvial-flood events (~1% to ~6%). It is therefore necessary to understand both hazard exposure and potential value loss at the asset level to assess the financial impacts from flooding.
100-year-flood damage by flood type
It’s all about asset location (location, location)
Given the widespread exposure and varying characteristics of coastal, fluvial and pluvial flooding, it is imperative for financial institutions to assess and understand the potential financial impacts of all three flood types. The substantial spatial variability of these physical risks means that such an assessment requires comprehensive asset-location data, an accurate elevation model and a globally consistent flood-modeling approach. These components enable a thorough understanding of flood-risk exposure, which is essential to mitigate potential losses and ensure long-term resilience in an increasingly unpredictable climate-risk landscape.