3. Content
Floods in Argentina: 4
a recurrent threat
Recent and historic floods – How history is repeating itself 4
Flood exposure today 9
Floods in the Parana basin – What can we expect? 12
Flood risk: perception 13
and protection gaps
Argentina’s insurance market at a glance 13
From the market: insurers’ and insureds’ views on flood insurance 15
Closing the gaps: making 19
Argentinians more resilient
A multi-stakeholder approach to flood risk management 19
Building a sustainable flood insurance market: key ingredients 22
How can Swiss Re 24
support you?
Working together to close the protection gap 24
4. 4 Swiss Re Staying afloat – Flood Risk in Argentina
Recent and historic floods –
How history is repeating itself
In the late afternoon of 2 April 2013, rain started pouring down like many other days
in La Plata. In just a few hours, 200 mm fell over the city. It did not take long before the
roads turned into rivers, and these rivers into fatal traps. Looking from the window of
her home in La Plata, Noelia eventually found herself staring at the water as it burst
violently into her house. In a few hours, the water level inside the house had crept up
more than a meter and worked its way into the small bakery shop that Noelia opened
on the ground floor of the building. Most of her baking equipment was now lying half-
submerged in the same murky waters that, throughout the city, were taking the lives
of dozens of people.1
A few days after the event, the full statistical picture on damage caused by the flood
began to emerge (Figure 1). Noelia was not alone in having to cope with a damaged
house and destroyed livelihood. In the cities of Buenos Aires and La Plata, more than
3 900 small commercial businesses, 200 industrial Small and Medium Enterprises
and 78 000 dwellings had been affected [1]. Overall, the water accounted for losses
of USD 1.6bn,2 including at least USD 800m as a result of a fire caused by the
inundation in a refinery owned by YPF, an Argentinian energy company.
From a meteorological point of view, the event marked an historical record for the city.
The National University of La Plata recorded a daily precipitation of 392.2 mm,
corresponding to almost 5 times the average precipitation in April for the region [2].
The heavy rainfall caused streams to burst their banks around La Plata, and flood
water eventually covered 3 500 hectares in the city and the surroundings.
1 The story was reconstructed from interviews and media reports of the flooding in
La Plata in 2013.
2 All monetary values are expressed in USD based on the 2015 exchange rate.
Original values are converted into USD using end-of-the year exchange rate and then
adjusted to inflation through the US consumer price index. Figures related to
economic losses triggered by past flood events were also adjusted to GDP growth.
Floods in Argentina:
a recurrent threat
5. Swiss Re Staying afloat – Flood Risk in Argentina 5
Nonetheless, the event was not a first for Argentina, nor was it the most severe.
Between 1982 and mid-1983, prolonged precipitations linked to el-Niño caused
multiple overflows of the Uruguay and Parana rivers and their tributaries, triggering a
combined economic loss of more than USD 4bn (USD 9.7bn today, adjusted for
growth). Only a few years later, in October 1985, heavy rains in the Province of
Buenos Aires caused the overflow of local rivers. Reported losses exceeded USD
2.8bn (USD 7bn today). More recently, the dramatic 2003 event in Santa Fe affected
more than 130 000 people and racked up losses of USD 1.3bn (USD 2.3bn today), as
well as injuring and taking the lives of scores of people (Figure 1).
Retail & Industry
Refinery (La Plata)
Agro Sector
Motor
Households
Health Facilities
Public Infrastructure
(N/A for La Plata event)
Santa Fe 2003 La Plata 2013
41%
41%
10%
1%
9%
1%
19%
46%
4%
30%
Source: Swiss Re own calculation based on CAME, CEDLAS, CEPAL, Reliefweb
How much of these losses were covered by insurance? Due to an extremely low
insurance penetration covering flood risk in the country, the insurance industry
could do very little to help society recover from flood events. Looking at the 2013
event in La Plata and Buenos Aires, less than 5% of the total damage to households
and small businesses was insured. The figure would have been even lower if some
insurance companies had not agreed to consumer-friendly payouts, which led to a
higher percentage of such losses being covered by the industry. Even so, most of the
affected families and businesses had to rely on their own financial resources to cope
with the consequent damage.
Figure 1
Registered losses during 2003 and
2013 events.
Economic losses reported during the
2003 flood in Santa Fe and the 2013
flood in La Plata and Buenos Aires.
6. 6 Swiss Re Staying afloat – Flood Risk in Argentina
Stories from the field3
Lucia, 43 – Salesperson in a fabric shop: We were on the mezzanine of the shop, looking at the water breaking into the room.
What shocked me most was not only the depth of the water in the street, but also the force of the flowing water. A car that was
parked on the sidewalk a few meters up the hill suddenly crashed into the window of my shop. I felt like in a movie. We did not
move: we were too afraid that more would be coming. I just stayed where I was till the rain started to abate and the water in the
street to drain away. One week was not enough to repair everything and get back to normality. I have to say that, when a flood
strikes, you can never be prepared enough.
January 2001 flood in Buenos Aires
Mario, 65 – Owner of hardware store: My business was flooded five times. In 2012, I was in the shop when the water started to
come in. I was standing on the table, the cash register in my hands and my eyes on the merchandise floating around the room. The
water inside was almost one meter high. When it began to recede, I realised how severe the damage was. It took me three days to
clean everything up. To me, the flood not only meant damaged goods, but also fatigue, extra work, and expended energy.
November 2012 flood in Buenos Aires
Floods in Argentina: a recurrent threat
Recent and historic floods – How history is repeating itself
Over the past 50 years, 75 major flood events have been reported in
the country, affecting around 13 million people and taking more than 500 lives.
With the equivalent of USD 22.5bn lost since 1980, floods are the most costly natural
catastrophe affecting the country. Adjusting for the country’s GDP growth, the same
events today would have caused accumulated losses of USD 43.5bn.
Overall, 58% of economic losses generated by natural catastrophes are
linked to a flood event (Figure 2). Earthquakes also represent a significant threat,
especially in the regions west of Cordoba. However, since they are characterised by
high severity but lower frequency, their contribution to the total economic losses
appears low if analysed over a short timeframe (1966–2015), when only one major
seismic event occurred in the country.
Flood
Storm
Drought
Hail
Earthquake
Others
58%
30%
1%
8%
2% 1%
Source: Swiss Re own calculation based on Desinventar and EM-DAT disaster databases.
Figure 2
Natural hazards and economic losses
Combined economic losses split by
natural hazard type in Argentina
(1966–2015).
With losses of USD 22.5bn since 1980,
floods are the most costly natural
disasters in Argentina.
3 The stories are based on real experiences from shop owners in Buenos Aires. They
were collected through interviews in March 2016. The names, as well as identifying
details, were changed to protect the privacy of the respondents.
Box 1
7. Swiss Re Staying afloat – Flood Risk in Argentina 7
Historically, the regions located in the Greater Buenos Aires, Gran Chaco, Pampas
and Littoral areas have suffered the most from flooding. The provinces of Santa Fe,
Formosa, Cordoba, Chaco and Entre Rios, as well as the City and Province of Buenos
Aires, have recorded the largest number of events over the last 50 years.
Since the country hosts more than 20 000km of watercourses, river flooding
constitutes a major threat for Argentinians. This type of inundation can leave
thousands of square kilometres in river plains under water for weeks. The 1982–1983
events in the Northern, Central and Littoral regions are a clear example of river
flooding. However, living far from a watercourse is no guarantee against flooding.
Some of the worst urban floods in Argentina, such as the 2013 event in La Plata, were
a consequence of short but intense precipitations that triggered what is defined as a
flash flood.
Misconceptions related to the level of exposure to floods are still widespread. Overall,
while people exposed to river floods are often well aware of their risk-exposure, the
less predictable threats posed by torrential rainfalls and flash floods are usually
underestimated. In reality, extreme precipitation triggering flash floods can happen
virtually anywhere: this is why almost everyone is exposed to flood, just to varying
degrees.
Flood risk-modelling is still a complex issue. However, the technology advances over
the past years have allowed for great strides in the quality, accuracy and availability of
flood risk models. Swiss Re Global Flood Zones™ (Box 2) describe river flood
exposure for locations in almost every part of the world. Using these, we are able to
estimate the number of people and properties that are highly exposed to floods
throughout the country, as well as the annual expected losses related to flood events.
Swiss Re Global Flood Zones ™
Swiss Re Global Flood Zones ™ (SR GFZ ™) provide an accurate picture of river flood exposure at a very granular level for
locations in almost every part of the world. They describe naturally flooded areas affected on average every 50, 100, 250 and
500 years (the so-called return period). These zones are compiled based on a well-tested geomorphological regression approach
patented by Swiss Re. This takes into account horizontal and vertical distance of a point in the terrain from a body of water as well
as the size of the relevant upstream catchment areas. The model, developed by Swiss Re’s natural-peril experts, combines the
latest scientific findings and Swiss Re’s global experience and is updated regularly. SR GFZ ™ have proven to be a powerful tool
in the insurance industry for effective flood risk assessment and adequate pricing, two essential elements to develop solid
flood insurance solutions.
Box 2
8. 8 Swiss Re Staying afloat – Flood Risk in Argentina
Floods in Argentina: a recurrent threat
Recent and historic floods – How history is repeating itself
Figure 3
Swiss Re GFZ in action
Comparison between NASA satellite
images of the La Plata flooding in 2013
and Swiss Re Global Flood Zones™.
Figure 3 shows a comparison between Swiss Re Global Flood Zones™ and the
satellite images from the 2013 flood event in La Plata. The first picture on the left
shows the satellite view over La Plata before the 2013 flood event. The following one
is a satellite image taken by NASA’s Terra satellite on 4 April 2013, just after the flood
event. The comparison with Swiss Re Global Flood Zones™ proves to be accurate,
demonstrating that flood maps and risk modelling tools can be powerful allies for
adequate flood risk assessments.
Source: [1] Swiss Re Cat Net. [2] NASA image courtesy
NASA/GSFC/METI/ERSDAC/JAROS, and U.S./Japan
ASTER Science Team [3] Swiss Re Cat Net.
Before
After
9. Swiss Re Staying afloat – Flood Risk in Argentina 9
Today, 1 in 3 Argentinians live in a
flood-prone area. Floods are expected to
cause economic losses of USD 700m
every year across the country.
Flood exposure today
Today 1 in 3 Argentinians live in areas highly exposed to flooding, amounting to a
total of 14.2m people across the country. Most of the population living in flood-prone
areas is concentrated in the Greater Buenos Aires, Pampas and Gran Chaco regions,
which together account for 65% of highly exposed population.
Besides the threat posed to the lives and health of the population, the estimated
economic damage is also extremely severe. Every year, the Argentinian economy can
be expected to lose about 0.15% of its GDP due to flood-related events. While at a first
glance this could appear a minor amount, it adds up to a total annual economic loss of
around USD 700m. At approximately USD 235m, the Greater Buenos Aires region
accounts for almost 35% of this annual expected loss. The Pampas region and Gran
Chaco follow, accounting for 18% and 12% of the annual expected loss respectively
(Figure 4). Looking at industry hubs throughout the country, 15 of the top 25
industrial parks in Argentina are located in flood-prone areas.
10. 10 Swiss Re Staying afloat – Flood Risk in Argentina
North-West (NOA) 1
1
1.1 70 26%
Gran Chaco 2
2.0 85 79%
2
3
4
5
7
6
People at risk in million
Annual expected loss in USD million
Human and economic impact
% of regional GDP in flood-prone areasGDP
GDP
GDP
The major flood loss potential is concen-
trated in the Sub-Andean lowlands in Salta
and Tucuman, characterised by a more
humid climate. The majority of flood events
registered in the region is linked to the
overflow of rivers (Rio Grande and Chico in
Jujuy, Bermejo and Pilcomayo in Salta and
Sali and Gastona in Tucuman). Most flood
events happen between December and
March, where the region registers peaks in
precipitations. Severe inundations were
reported in 1974, 1984 and 2000.
Rich in watercourses (Parana, Paraguay,
Pilcomayo, Bermejo, Salado and Dulce)
and with a rather flat topography, flood risk
exposure in the region is extremely high.
More than 70% of the region's population
is at risk today. Historically, some of the
most devastating flood events in the area
coincided with the so-called Mega Nino
(1982/83 and 1997/98) and Nino Fuerte
phenomena (1972, 1986/87 and
1992/93). However, severe events also
occurred in 1974, 1984 and 2007.
Floods in Argentina: a recurrent threat
Flood exposure today
Figure 4
Human and economic impact
11. Swiss Re Staying afloat – Flood Risk in Argentina 11
Littoral 3
0.9 45 34%
Cuyo 4
1.4 65 38%
Pampas 5
3.2 130 44%
Greater Buenos Aires 6
4.6 235 30%
Patagonia 7
1.0 70 43%
GDP
GDP
GDP
GDP
GDP
Situated between the Parana and Uruguay
rivers, the large flood loss potential in the
region comes from prolonged and heavy
precipitations which cause the overflow of
the two rivers and their tributaries. Flood
events along the Parana register a peak
from February to July. Historically, severe
flood events occurred in 1982/83,
1992/93, 1997/98 and 2015.
It includes the provinces of La Rioja, San
Juan, San Luis and Mendoza. Among
these, the Mendoza area alone contributes
to more than 60% of the region's annual
expected loss. Flash floods triggered by
torrential rainfalls are a significant threat,
especially during the summer months. The
steep mountain landscape of the Andean
region contributes to increasing the speed
and violence of the water flow in case of
torrential rainfall, whereas the urbanisation
of the region has reduced soil permeability.
Mendoza suffered a major inundation in
January 1970 due to the collapse of a
dyke, which sent torrents of water into
the city.
The region is highly exposed to pluvial and
fluvial floods. Crossed by the Parana and
the Rio Salado, Santa Fe witnessed major
flood events in 1982/83, 1986,
1992/93, 1998 and more recently in
2003 and 2007. In the mountainous
regions of the Cordoba province, flash
floods represent a major threat. The impact
is particularly severe due to the low
permeability of the soil, the steep natural
slopes of the terrain, insufficient vegetation
and the concentration of rainfall in the
summer months. Severe flood events were
reported in 1992, 1993, 1997, 2000 and
2015.
The region comprises the Province and
City of Buenos Aires. It is home to about
45% of the country's population and GDP.
In the last decades, the urban areas of the
region have suffered from recurrent
flooding triggered by short and intense
precipitations and backups in the sewage
system. Some of the most severe flash
floods took place in 1985, 1988, 2000,
2001 and 2013. The agricultural areas in
the interior of the Province have suffered
from the overflow of the Parana, Salado
and Quinto and of several other smaller
watercourses crossing the region.
Patagonia accounts for 30% of Argentina's
territory but only 5% of its population. With
the exception of the mountainous region in
the western part of the region, the climate
is generally semi-arid. However, problems
related to flooding are worsening due to
growing populations and urbanisation of
the valleys and areas surrounding the
region's watercourses.
Source: Swiss Re own calculation
12. 12 Swiss Re Staying afloat – Flood Risk in Argentina
Floods in Argentina: a recurrent threat
Floods in the Parana basin – What can we expect?
The Parana is the longest river crossing the country. Together with its major tributaries,
the Parana forms a basin which occupies most of the Northern and Central areas of
Argentina, for a total of about 2 600 000 km². The basin is home to 11million people
and contains some of the most economically dynamic regions of the country. Overall,
almost 30% of Argentina’s GDP is produced here.
Swiss Re catastrophe modelling developed a severe flood scenario for the Parana
and Paraguay catchments. In this scenario, we projected an exceptionally prolonged
period of consistent precipitations, which would cause these two major watercourses
to burst their banks. Long stretches along the two rivers would be under water,
including areas of the most vibrant economic centres of the region, such as the cities
of Rosario, Santa Fe, Resistencia, Corrientes and Parana. Economic losses are
estimated to amount to USD 3.5bn, with more than half a million people affected.
The damage would not only constitute a drain on public and governmental resources
necessary to reconstruct infrastructure and assist the affected population. Small firms
would face equally severe consequences: damaged buildings and merchandise,
business interruption and lost profit would undermine the financial viability of the
businesses. Finally, thousands of households would also need to find a way to cope
with the damage caused by the inundation. As flood events cannot be completely
avoided, how can Argentinians become more resilient and bounce back more quickly
following such disasters?
13. Swiss Re Staying afloat – Flood Risk in Argentina 13
Flood risk: perception
and protection gaps
Argentina’s insurance market at a glanceArgentina’s insurance market at a glance
13.9
62.9 Brazil
25.1 Mexico
11.4 Chile
7.9 Colombia
Total premium written
bn USD2015
320
633 Chile
370 Uruguay
302 Brazil
207 Mexico
Premium per capita
USD2015
2.4%
4.8% Venezuela
4.7% Chile
3.5% Brazil
2.6% Colombia
Insurance penetration
premium/GDP2015
+ 6%
Outpacing the economy
by two percentage points
on average
Real premium growth
2006–2015
65%
Drivers of premium growth
Of total market premiums
10%
Property premium
Of non-life premiums
Motor Only 15–30% of homes
are estimated to have
an insurance
Workers’
compensation
Sources: Swiss Re Economic
Research & Consulting, AXCO.
Currently, Argentina has very low insurance penetration for the non-life sector
(around 2% of GDP in 2015). With the exception of the motor sector and global
corporations, where insurance coverage is medium-high, for most other markets flood
coverage is either very low or even non-existent.
14. 14 Swiss Re Staying afloat – Flood Risk in Argentina
Households and homeowners
It is estimated that only 15–30% of houses are covered by any type of property
insurance policy. [3] Standard household policies generally do not include flood
coverage, which would have to be requested by the insured as an ad-hoc additional
feature. However, very few insurance providers in the country actually offer this
option. As a result, households have no other option but to rely on their own financial
resources or government funding to cope with losses resulting from a flood event.
Industrial & small commercial insurance
Industrial all-risk policies usually offer flood coverage either as a default feature or as
optional coverage for an additional premium. These types of policies have traditionally
been available for large risks (global corporations or large local enterprises). However,
the insurance industry is now starting to grant cover to smaller enterprises too,
frequently subject to a minimum premium. Flood coverage is usually excluded from
standard SME and retail risk policies and it would have to be requested as an
additional feature. Today, micro, small and medium-sized enterprises (SMEs) [4] are
often not able to buy coverage for flooding, resulting in very low insurance
penetration.
Motor insurance
Losses caused by flooding are usually covered by all-risk policies (10–12% of total
policies), whereas the so-called tercero completos coverage only includes flood
damages if the vehicle is a total loss. Recently, insurance companies have started
expanding flood coverage to other types of motor policies too. With an estimate of 60-
70% of vehicles covered by all-risk or tercero completos policies, flood insurance
penetration in the motor sector is medium-high.
Agro sector
With around 38m hectares cultivated, agriculture remains of great importance for the Argentinian economy, accounting for around
8% of the country’s GDP [5]. Soy takes a lion’s share of agricultural production, accounting for more than 50% of the cultivated
land, followed by corn (16%) and wheat (14%) [6]. Despite a relative decline in livestock population since the 1990s, the livestock
sector is still an important feature in the country’s economy, counting around 53 million head in 2016 [7].
Argentina was one of the first countries in Latin America to develop an agricultural insurance system, back in 1898. Today, around
18m hectares are insured throughout the country, representing around 50% of total cultivated land. [8]. Crop insurance accounts
for most of the agro insurance portfolio, with forestry and livestock coverage being very limited.
Agro insurance policies can be classified in three main groups: coverage against hail, hail plus additional risks, and multi-peril
policies. Of the USD 331m of total premiums, 98% corresponds to the first two types of coverage. Coverage against flooding is
usually only included in multi-peril policies, which represent less than 2% of total insurance coverage, making for extremely low
flood insurance penetration in the agricultural sector. One reason for this is the complexity of technical and feasibility studies
that insurance companies have to carry out to verify that the insured complies with the requirements for the coverage. This creates
high insurance premiums which are often unaffordable for small businesses. On average, a multi-peril policy implies an additional
cost of between 5 and 8% for the producer. Low awareness of risk-transfer solutions, as well as narrow profit margins in the sector
also contribute to a low penetration rate.
Flood risk: perception and protection gaps
Argentina’s insurance market at a glance
Box 3
15. Swiss Re Staying afloat – Flood Risk in Argentina 15
From the market: insurers‘ and insureds‘ views
on flood insurance
To shed some light on the current challenges for the flood insurance market in
Argentina, we have collected the views of 30 brokerage, insurance and reinsurance
companies active in the country. More than 75% of interviewed brokers and re/
insurers believe they do not have access to tools to adequately price the risks
related to natural catastrophes. For them to be effective and sustainable, graded
premiums should be based on adequate hazard analysis. However without the
adequate tools to assess risk-exposure, Argentinian insurers cannot guarantee
adequate pricing for risks, hindering the development of a healthy flood insurance
market. Challenges related to the lack of geo-reference information in most
portfolios, as well as address normalization and geo-encoding were listed among
the technical difficulties to be overcome. In chapter 4 we will see how nowadays
technological advances and developments in flood modelling make it possible to
adequately assess flood exposure of both single risks and entire portfolios. This will
open the doors to the creation of a sustainable flood insurance market.
Another reason behind insurers’ reluctance to offer flood insurance solutions is the
potential threat posed by adverse selection. More than 60% of the survey
respondents believe that Argentinians have a low awareness of the risks related to
flooding. Insurers pointed out that widespread misconceptions about risk exposure
throughout the country would depress flood insurance demand and increase the risk
of adverse selection.
But what are the actual views of the insureds with regards to floods? To find out, Swiss
Re carried out face-to-face interviews with 70 micro and small businesses
throughout the City of Buenos Aires, and collected their concerns and perceptions
related to floods.4
Of the 18 businesses that reported having suffered from flooding in the past, half were
affected more than once. Fourteen businesses lost part of their merchandise and
inventory. However, losses also came in the form of lost profits and business
interruptions: 40% of affected businesses were compelled to shut down their activities
for several days (up to a week), and 17% of them for up to two weeks. Damage to the
building structure (floors, walls and windows), as well as to machinery and equipment
were also reported by 30% and 40% of victims respectively.
4 Interviews were conducted by Swiss Re in the last week of March 2016. Overall,
70 businesses were interviewed.
16. 16 Swiss Re Staying afloat – Flood Risk in Argentina
Figure 6
How to pay: reality vs desires
Affected businesses’ experiences with
loss coverage (dark blue) vs preferred
ways to pay for the losses (light blue).
All the affected businesses had to use their own financial resources to pay for the
losses. Only three of them were able to access any form of government support
(subsidies or subsidised loans). Interestingly, affected respondents believed that the
process to apply for Government support was too lengthy and complex to warrant the
compensation received.
When asked how they would prefer to have their losses covered following a potential
flood event, however, both affected and non-affected businesses said they would
rather rely on a combination of private savings, private insurance coverage and
government subsidies (Figure 6).
Affected businesses: How did you pay for the losses incurred?
Non-affected businesses: What would be your preferred way to cover losses incurred
in the case of a flood event?
0%
20%
40%
60%
80%
100%
Bank loansCharity
donations
Government
loans
Government
subsidies
Private
Insurance
Private
savings
Affected Non-affected
Source: Swiss Re.
The results suggest the existence of a perceived need for insurance coverage
which is currently not yet fulfilled by the market, with half of interviewees mentioning
private insurance as a preferred option to cope with the losses. Despite this, 80% of
them said they have never looked into the possibility of purchasing an insurance
coverage for flood risk. In fact, almost two-thirds of respondents said they did not feel
exposed to the threat of flood and that even if one occurred losses would be very low.
Flood risk: perception and protection gaps
From the market: insurers’ and insureds’ views on flood insurance
17. Swiss Re Staying afloat – Flood Risk in Argentina 17
What would prevent you from purchasing flood insurance coverage?
Figure 7
Insureds and flood coverage
Reasons behind low perceived interest in flood coverage.
Agree Neither agree nor disagree Disagree I don’t know
0 20 40 60 80 100
I don't trust insurance companies
Insurance premiums are too high, I could not afford it
My insurance company does not offer flood coverage
The Government would be responsible to pay
Losses would be too low
My company is not affected
Source: Swiss Re.
The so-called “optimism bias” can help us explain the trend described above. While
interviewed businesses in Buenos Aires were aware of the impact of floods and have
witnessed several flood events affecting their neighbourhoods (the last severe one
being in 2013), they believed they would not be personally affected anymore. In fact,
interviewed businesses were confident that infrastructural work (mentioned by 90%),
less severe precipitation (mentioned by 50%) and changes in the waste management
system (mentioned by 10%) would contribute to lowering their risk exposure. While
flood protection infrastructural measures are indeed a powerful tool to reduce flood
risk, we cannot assume that all events can be prevented or controlled, or that all losses
can be avoided. Moreover, as described in Box 4, population growth, urbanization,
economic growth and climate change are expected to determine an increase in flood
risk exposure even in the near future. Joint communications efforts by the
government, educational institutions and the re/insurance industry are needed
to tackle these misconceptions and shed light on the phenomenon of flooding. Finally,
in the following chapter we will look into insurance affordability and find out how
small businesses could insure themselves against flooding for less than a few dollars
per day.
Misconceptions about risk exposure, as
well as “optimism bias”, should be
addressed to increase flood insurance
penetration.
18. 18 Swiss Re Staying afloat – Flood Risk in Argentina
A look into the future: flood-exposure in 2025
Looking ahead, the impact of floods on the social and economic structure of Argentina is expected to worsen. Population growth,
urbanisation, economic growth and climate change are the main drivers of this increase in flood risk exposure.
Population growth & urbanisation: According to estimates by the United Nations, in 2025 Argentina will count more than
45.4m inhabitants, 93% of them living in cities. Urbanisation has for long being recognised as a major determinant of flood
exposure. Based on estimated annual growth of urban population of 0.88% per year over the next decade, we can expect 15.5m
Argentinians to be at risk from flood in 2025. This means an additional 1.3m when compared to today’s numbers.
Economic growth: According to Oxford Economics forecasts, fixed capital will grow on average by 3% annually for the next ten
years. Due to this growth alone, the total annual expected loss would increase by USD 250m over the next decade, reaching
USD 1.1bn in 2025.
Climate change and precipitation patterns: Looking at historic records of rainfall over the past 40 years, we notice that warm
seasons in Buenos Aires have become increasingly rainy, with median precipitations increasing by 10 to 40% over the last four
decades. The occurrence of extreme precipitation events of more than 100mm within 24 hours nearly doubled between 1980 and
2000. Projections for the next decades suggest that, throughout the country, the general increase in precipitation experienced
over the last 50 years for the east and central Argentina will continue for the rest of this century. Moreover, extreme weather
events are expected to become not only more frequent, but also more intense. [9]
Flood risk: perception and protection gaps
From the market: insurers’ and insureds’ views on flood insurance
Box 4
19. Swiss Re Staying afloat – Flood Risk in Argentina 19
Closing the gaps: making
Argentinians more resilient
The situation portrayed in the previous chapters suggests that there are two main
challenges to overcome to build a sustainable flood insurance market in the country.
First, there is a strong need to address the perception gap and the widespread
misconceptions about risk exposure. Second, the shortfall in flood insurance
supply, related to primary insurers lacking the tools and knowledge to adequately
price the risk. Is it possible to change the situation? How can we overcome these
barriers?
A multi-stakeholder approach to flood risk
management
A flood-resilient society is one which is able to quickly recover when affected by a
flood event, and where the social and financial damage caused by the flooding does
not permanently hamper its communities. Such an overarching objective relies on
joint efforts by many different actors, from individuals and businesses to civil society
and the public sector.
Holistic flood risk management – multi stakeholder approach
Holistic flood risk management - multi stakeholder approach
Initial flood risk
Zoning laws
Flood control
Emergency response
Insurance
Awareness raising
Concerted efforts by all stakeholders are
required to build a flood-resilient society
Figure 8
The flood risk management chain
To build a flood resilient society
effectively, concerted action from the
government, the re/insurance industry
and individuals is crucial.
20. 20 Swiss Re Staying afloat – Flood Risk in Argentina
The public sector – including the federal government but also local authorities at
regional, provincial and municipal level – has a crucial role in reducing flood risk
through awareness raising programmes, zoning laws, flood control and an adequate
emergency response.
Awareness raising
Addressing misconceptions about flood-risk exposure is crucial to building a society
that is informed, engaged and, eventually, more resilient. Home owners and
businesses should become aware of their own flood risk, the nature of the potential
damage and of viable solutions to mitigate their exposure and transfer the residual
risk. In this sense, the engagement of public authorities is vital to build a conscious
and engaged society though educational and risk-awareness programmes.
Zoning laws
Zoning laws can promote a more sustainable approach to flood management by
restricting construction in high-risk areas and encouraging it in areas at low risk. Such
laws can also ensure that new residential, industrial and commercial centres are not
located in flood-prone zones.
Structural measures for flood control
Infrastructural measures have been at the core of the public sector flood management
approach in the country (see Box 5). Building dams, dykes and catchment reservoirs
can significantly reduce the damage caused by a flood event. Sound maintenance of
existing infrastructure and periodic adaptation to reflect changes in flood exposure are
also important. Temporary protection measures – e.g. controlling river flows with
temporary sand bag walls and mobile flood barriers – can further reduce the risk.
Non-structural measures for flood control
Weather and hydrological models that enable forecasting and provide advance
warning to regions at risk can be crucial to reduce property damage and save lives in
case of severe events.
Emergency response
In spite of the above, not all flood events can be forecast or avoided. For this reason, it
is important that all parties put together and agree on a consistent and coherent
emergency management framework prior to the event. When a natural catastrophe
strikes, a quick and well-coordinated response can save lives, money and time in the
reconstruction process.
Closing the gaps: making Argentinians more resilient
A multi-stakeholder approach to flood risk management
21. Swiss Re Staying afloat – Flood Risk in Argentina 21
Existing public measures towards flood-resilience
In Argentina, the public sector has focused its efforts on risk reduction as well as disaster relief. Flood risk reduction measures revolved
around the implementation of early-warning systems for river flooding and infrastructural measures for flood protection. The “Trust
Fund for Hydric Infrastructure” is a USD 2bn fund initiated in 2001 which constitutes the main funding pool for flood protection
infrastructural programmes throughout the country. Up to December 2015, about 55% of the allocated budget had been paid out for
local and federal infrastructural projects [10]. Since 1992, national and local authorities have also been able to count on the financial
and technical support of the World Bank for the implementation of flood resilience measures. Overall, eight loans have been approved
by the Washington-based international organisation, covering a total amount of more than USD 2bn [11].
Disaster-relief measures represent another key component of governmental flood protection policy. After particularly severe flood
events, ad-hoc measures have often been approved by the federal government with the aim of helping affected homeowners and
businesses face the damages incurred. These measures included the allocation of funds to reconstruct damaged residential
properties, as well as subsidy schemes to increase welfare benefits for vulnerable affected households (e.g. pensions,
unemployment compensation, family subsidies). The final objective remains to alleviate the financial burden for the most
vulnerable sections of society affected by severe flood events. On a local level, public authorities have also implemented different
disaster relief schemes to assist the victims of flood events. However, these ad-hoc measures remain fragmented as there is no
holistic disaster-management plan at the national level. According to the United Nations Development Programme, this is also
reflected at a provincial level, with most of the Argentinian provinces lacking an overarching legislation dedicated to flood
management [13]. The involvement of the public sector is certainly important to address the perception and lower the exposure to
flood risk in the country. However, not all losses can be avoided, and relying completely on public budgets to cover all disaster-
related losses often results in the affected families and businesses bearing the full brunt of the financial losses.
Insurance
A traditional insurance approach, based on the principle of solidarity, would
effectively respond to the challenges posed by the current system. Firstly, the victims do
not have to depend entirely on the goodwill of others, but instead have a legal right to
payment of a previously-agreed indemnity. As the terms of cover are pre-defined,
payments can be made quickly. The insurance industry has extensive experience in
handling claims and payments are usually settled over a shorter time, accelerating the
reconstruction process. Moreover, coverage is possible for practically all private property
damage and even losses due to business interruption. This would not only relieve the
financial burden on the government, who could then concentrate on repairing
infrastructure and assisting the most vulnerable, but would also translate into
households and businesses being able to promptly regain their financial viability.
Box 5
22. 22 Swiss Re Staying afloat – Flood Risk in Argentina
For these reasons, we believe that the insurance industry also bears important
responsibilities in helping Argentinians become more resilient. By providing
mechanisms that allow individuals and businesses to transfer the financial risk that
still remains after government intervention, the re/insurance industry can help
communities recover quickly to their pre-disaster state.
The role of insureds
Finally, households and businesses can also make a significant contribution to
increasing flood-resilience. Their involvement starts with implementing flood
protection measures on their own property. Placing sandbags or other materials to
protect the building, moving valuable goods to higher floors, or installing check-valves
in plumbing to prevent flood waters back-up from the drainage system are all small
steps which can significantly reduce flood losses. Homeowners and businesses
should also be aware that insurance should not be used to completely transfer the
expenses of flood mitigation to the community: insurance deductibles and limits, as
well as risk-based premiums, can work as effective incentives for the implementation
of mitigation measures at an individual level.
Building a sustainable flood insurance market:
key ingredients
Flood insurance represents a great business opportunity for insurance providers in
Argentina. With the technological advances and knowledge available to the industry
today, there is no reason why insurance cover for flood damage should not be
provided. Today, the creation of a private flood insurance market is a sustainable
opportunity.
Throughout the world, countries have established different systems to offer flood
insurance. Some states provide compulsory flood insurance coverage. In other
markets, coverage is either offered as a completely optional feature, or as a bundle
with other perils or basic insurance covers. Regardless of the system chosen, building
a large risk community represents a key step to ensure both the affordability of the
product to the final consumer and the economic sustainability of the insurance model.
But what does it take to achieve this aim and respond to the challenges posed by anti-
selection?
Product affordability is a first crucial factor in triggering final consumer demand. The
lower the average premium rate paid by the final consumers, the easier it is to enlarge
the community risk. According to our calculations, for a small or medium-sized
business which has a medium exposure to flood risk, the premium is likely to be lower
than a few dollars per day. Similarly, a family living in a house in a 100-year zone in
the city of Buenos Aires is likely to pay less than the cost of an espresso a day. These
few dollars per day could have made the difference for Noelia, Mario, Lucia (see
Chapter 1) and all the other families and businesses who struggled to recover after
being hit by severe flood events.
The insurance industry can make a big
difference in helping Argentinian families
and businesses become more resilient to
flood.
With the technological advances, tools
and knowledge available to the industry,
the creation of a private flood insurance
market is a viable and sustainable
opportunity.
Closing the gaps: making Argentinians more resilient
A multi-stakeholder approach to flood risk management
23. Swiss Re Staying afloat – Flood Risk in Argentina 23
Risk-based graded premiums: it is important that the premium paid by the
policyholder actually reflects its risk exposure. Because the loss frequencies of the
individual risks vary widely, a graded premium system ensures fairness and facilitates
the creation of a sufficiently large risk community.
A bundled system which integrates flood coverage into a property insurance
coverage has proved to be an effective way to create large risk communities. Bundling
flood insurance with existing fire (or other perils) policies at renewals or offering it as a
default option for new policies, will make it easily accessible for a large number of
people, facilitating solid penetration in the market. The bundled system also leaves
room for diversification across perils, which contributes to maintaining the product’s
affordability and the economic viability of the system. Finally, product bundling would
also allow the insurance industry to offer a more holistic service to their customers.
Transparent, concise and easily understandable policy wordings are also essential.
Such wordings enhance client satisfaction and avoid damage to the industry’s
reputation when severe events occur. This is particularly important in newly
established markets such as applies to flood insurance in Argentina. A strong sales
plan should take into consideration:
̤̤ product accessibility,
̤̤ marketing strategies to engage with the clients,
̤̤ a communications plan to raise awareness of risk exposure,
̤̤ guidance for the consumer in his final purchasing decision.
Finally, enhancing the relationship with the final insured through clear and effective
communications can help build trust and increase customer retention.
24. 24 Swiss Re Staying afloat – Flood Risk in Argentina
How can Swiss Re support you?
Working together to close the protection gap
Swiss Re globally collaborates with insurance providers to close protection gaps. We
have the tools, capacity and knowledge to support you in doing this. With more than
25 years of experience in flood risk modelling and many projects all around the world,
we are happy to share with you the know-how and lessons learned from other
markets and adapt them to the specificities of the Argentinian market.
A partnership with Swiss Re can bring:
Our flood models and tools allow you to create
customised risk maps, check the susceptibility
of your portfolio to flood risk, control accumu-
lation and set an adequate price. Our deep
understanding of natural catastrophes will help
engage with customers to raise their awareness
about flood exposure.
Know-how, models and tools
Our
value
proposition
Swiss Re globally collaborates with insurance providers to
close protection gaps. We have the tools, capacity and
knowledge to support you in doing this. With more than
25 years of experience in flood risk modelling and many
projects all around the world, we are happy to share with
you the know-how and lessons learned from other markets
and adapt them to the specificities of the Argentinian market.
A partnership with Swiss Re can bring:
From defining the structure of your flood
insurance product, to policy wordings and
technical rates, we can share with you insights
and best practices from our markets around the
world. We are ready to support you in engaging
with your customers, triggering action and
increasing your take-up rate.
Product development
How are other insurers around the world
managing claims related to flood? How did they
face large catastrophic events? We are happy to
share our insights with you on catastrophe
claims management and business continuity
plans.
Claims management
Risk-sharing through
tailor-made reinsurance
solutions
25. Swiss Re Staying afloat – Flood Risk in Argentina 25
Success stories: from floods in Australia to hail in Argentina
Setting up a new insurance market opens doors to new business opportunities. But it does present challenges. The case of flood
insurance in Australia is a compelling example of how rapidly and effectively the private flood insurance market can grow. In
2010–2011 several regions in Australia were hit by severe flood events caused by prolonged rainfall which caused the overflow of
major rivers. At least 90 towns were affected and over 200 000 people displaced. Total losses were estimated at USD 6.1bn. At
the time, river flooding was excluded from standard household insurance policies. The reputation of the insurance industry suffered
heavily as a result.
It was only after the event that some insurance companies seized the opportunity and began to offer river flood coverage as a
default option in all-risk household policies. The availability of flood zones made it possible for the business to take off in a
relatively short time. Flexibility and adaptability to the customers’ needs are guaranteed as homeowners can opt between the
purchase of coverage for building only, contents only, or combined. Through a system of risk-based premiums and deductibles, the
industry has ensured affordability of the product, but also sustainability and economic viability for the business. Coverage is usually
offered up to full limit. Within 5 years, flood insurance penetration increased from less than 10% to 70%.
Staying within the Argentinian borders, the case of hail coverage in the motor sector provides us with a second instance of how
initial challenges can be overcome to create a healthy and profitable market. Until 26 June 2006, hail was considered a major
threat only for agricultural businesses. In the motor sector, hail was only included in all-risk policies (representing less than 10% of
policies at the time). When a severe and unusual hail storm hit the city of Buenos Aires in the afternoon of Wednesday 26 June
2006, thousands of car owners found themselves alone in facing the damages caused to their vehicles. Following the event,
insurance companies began to re-think their strategies regarding hail coverage. Today it is very unlikely that a car owner will
exclude hail coverage from his or her insurance coverage.
Box 6
26. 26 Swiss Re Staying afloat – Flood Risk in Argentina
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