Leveraging new approaches to flood risk to strengthen business resilience
As companies around the world grapple with pandemic-linked supply chain disruptions, extreme weather and a collective failure to take actions on climate change could prove even bigger threats to business resilience.1
It’s increasingly clear that climate change is a contributing factor to extreme weather events, and that the number and costs of natural disasters are rising. This year alone, unusually heavy monsoon rains and flooding have affected vast swathes of Asia, including industry-intensive regions of India, Japan and China, complicating production and logistics for manufacturers worldwide.
Our research shows APAC, particularly South and Southeast Asia, is especially vulnerable to the physical risks associated with climate change due to geographic factors and a relative lack of readiness.2 Flooding is one of the main weather-related hazards the region faces, with cumulative losses over the last decade from secondary-peril type flooding in Asia and Oceania reaching nearly USD 30 billion.3
Figure 1: Cumulative insured losses in 2011 – 2020 by secondary peril type, and primary peril totals (USD bn), 2020 prices
Preventing flooding altogether will not be feasible. But by leveraging the right data, strategies and protective measures, businesses can enhance readiness for flood events, and significantly reduce their business interruption risks and damaging impacts on supply chains.
Complexity and concentration
Current trends point to an urgent need for manufacturers operating in APAC to assess and take steps to mitigate flood risks, given the region’s position at the heart of global production networks. The potential of floods crippling production facilities and supply chain infrastructure has been on full display in recent years in catastrophes such as:
2021 China flood
China’s central role in global production meant flooding this year in Henan province not only caused significant disruption to wheat and coal supplies, but also damaged equipment and halted operations for a number of multinationals and their suppliers in the tech, automotive and transportation sectors.4 In early October, heavy rains in Shanxi province exacerbated the country's fuel supplies shortage and complicated its effort to ease the already challenging energy crisis.
2018-2021 Japan floods
Recurring heavy rainfall and flooding in multiple parts of Japan interrupted railway services and power supplies, and effectively suspended operations at major industrial estates such as Koriyama, where at one point approx. 96% of over 1,000 plants and offices were flooded.5 Floods in 2018 in Western Japan caused just under USD 10 billion in losses and forced major automakers to suspend production of tens of thousands of vehicles.6,7
2011 Thailand floods
Severe flooding affected the country’s industrial heartland in downstream areas of the Chao Phraya Basin, a major source of intermediate inputs for manufacturers in Japan, the US and EU. The disaster caused almost USD 50 billion in losses and led to costly drops in output for large global automakers and electronics producers.
Building a more flood-resilient future
Such events demonstrate how flooding in just one area can have serious implications for manufacturers and production networks everywhere. Though future floods are unfortunately inevitable, businesses can also adopt tools and approaches to build their resilience to this specific risk.
Companies can begin by enhancing their overall preparedness, through steps such as:
- Developing robust flood emergency response and business continuity plans
- Building new infrastructure (or retrofitting existing infrastructure) to address issues identified as the result of any risk assessment and analysis, and taking the threat of increased precipitation and floods into account
- Assessing risks throughout the supply chain, clearly identifying critical suppliers and diversifying their supplier network beyond those in flood-prone areas. This is in addition to mitigation methods applied at their own sites.
- Moving to close gaps in insurance coverage and financial protection against flood risks
Beyond these best practices, the evolving nature of the threat calls for innovative solutions. Insurers are honing technology and approaches to assess and manage flood risks in entirely new ways, with higher degrees of precision. One such approach is climate risk solutions for corporates, a technology-based platform that enables companies to mitigate the future impact of climate change on their business operations and enhance their business resilience.
Examples from our Risk Engineering Services practice include:
- FLOAT: We are able to deploy drones to enhance the capture and dissemination of location-specific elevation data and 3-D mapping, paving the way for more detailed projections on the depth of floods and their impacts on industrial buildings.
- CatNet®: Our proprietary geo risk tool allows companies to chart key locations along the supply chain and examine the likely risks and impacts of floods and other natural catastrophe events. It also involves the parameters of climate change with unprecedented depth and detail.
- Flood/Windstorm preparation guide: Based on our experience and expertise with previous flood events we have developed a comprehensive checklist for businesses to reduce the vulnerability of vital facilities to flooding.
Figure 2: Example of CatNet® visualisation: flooding in Kyushu island, Japan, August 2021
These solutions and practices are designed to help manufacturers become more anticipatory and proactive in ensuring business continuity and resolving supply chain weaknesses, which is ultimately the best response to flood risk. We are determined to develop even more sophisticated solutions and tools to support businesses’ ability to address floods and other climate-linked challenges before they arise. Each success in this respect will stand as an example of business resilience in action.
5https://www.asahi.com/articles/ASNBG6T8QNBDUGTB00W.html (Japanese only)
6Swiss Re sigma loss database