The Floods of 2017: How can the private sector mitigate the impact of natural disasters

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Luiz Gabriel AzevedoEscrito por:

There are many theories to explain the current trend of increasing frequency and magnitude of extreme events, but it seems obvious that there is a correlation with increasing average temperatures. Many argue that the world is already experiencing the consequences of climate change and that even if the increase on average world temperature is kept under 2 degrees Celsius, countries will have to adapt to a wider range of natural disasters.

During 2017 the world witnessed the occurrence of severe floods from China to Canada. As we wrote this article, Italy was facing its second season of severe flooding. Latin America and the Caribbean was no exception, and Peru was particularly affected by this phenomenon. The floods in the Andean country destroyed 115,000 homes, leaving almost 180,000 homeless, over 110 people were killed, more than 350 were seriously injured, and over 2,500 kilometers of roads have been devastated.

The region is particularly vulnerable to the occurrence of floods as it is the most impacted by El Niño. Additionally, due to its high urbanization rate, the impact of floods to cities and urban infrastructure are often devastating. While estimates of necessary annual investments to manage floods in the region vary, given the constraints on fiscal spending, the full burden of this cannot be met by governments alone. Therefore, the private sector has a key role to play, that involves both the development of software as well as hardware.

Insurance: A key software for mitigation

On the soft side, alternatives to avoid or mitigate the impact of severe floods include flood insurance, payment for environmental services, better flood assessment and warning systems, ecosystems planning, and zoning, among others. All these services can be provided by the private sector through the development of policies and adequate incentive frameworks.

For example, unleashing private sector insurers to offer products in Latin America is no easy task but it can bring about a stream of benefits. Insurance is a fundamental component in any strategy of adaptation to natural disasters. As illustrated in a paper by the Global Facility Disaster Reduction and Recovery, flood insurance:

  1. Increases resilience against residual risks that cannot be prevented or mitigated
  2. Incentivize engagement and investment in risk mitigation measures
  3. Reduces pressure on the fiscal budget from natural disasters

Private sector participation is driven by a complete shift toward risk-based rates, and more accurate mapping which in turn provide correct economic incentives both in urban as well as in rural areas (agriculture in particular).

The private sector can apply innovation and technology to improve early warning systems.  The earlier we can identify where storms are likely to hit, the better we can target efforts to minimize damages. In the Netherlands, for example, Siemens has created the concept of “smart levees” by implementing a monitoring system that uses sensors to gauge water pressure, temperature and shifting water  profiles. This allows the identification of stretches of levees that are at higher risk of being breached.

Innovative solutions for better hardware

With respect to hardware, the most obvious opportunities relate to retrofitting and developing infrastructure that is more resilient, and can better perform under extreme conditions. The vulnerability of existing infrastructure was evident during the occurrence of natural disasters in 2017, and the private sector can bring capital, innovation, management systems, and technology. Following hurricane Maria devastation in Puerto Rico, Tesla’s Elon Musk, offered to green and revamp energy generation in the island through the installation of solar systems and high-tech batteries.

Bold ideas and innovation will be necessary to assist Latin America and the Caribbean in adapting to the impacts of climate change. In doing so, a vital role of governments is to develop policies and regulatory frameworks that allow the creation of new business models and provide incentives for companies to invest on climate smart infrastructure. For instance, building and financing (public/private) business models for urban drainage transformation in megacities represents a gigantic opportunity to foster investments that will significantly improve the quality of life of millions of urban residents in the region.

At IDB Invest we can draw lessons from our vast experience in the region that combined with disruptive technologies, and a menu of  financing instruments can offer unique value propositions to our clients. We embrace the opportunity to work with private companies all over Latin America and the Caribbean in the development of innovative models that can contribute to better management of floods and other natural disasters in our countries.

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Last modified: Diciembre 21, 2017

One Response to " The Floods of 2017: How can the private sector mitigate the impact of natural disasters "

  1. William Dantas Vichete dice:

    I agree that the private sector can assist in flood management, but I believe there is a lack of public policy to make it happen on significant scale.
    pode ser avaliada sob o aspecto econômico e até mesmo socioambiental.
    Flood insurance is a tool that is already consolidated in Europe and North America. Tax reductions for corporations assisting in flood mitigation could be the result of the marginal benefits obtained through targeted interventions, that is, by reducing the risk of flooding in an area. Thus, a clear tangible benefits can be evaluated under the economic and even socio-environmental aspect.
    The implementation as Siemens, is an improving quality for services. In Latin America we do not have structural system but we need use all available technologies for a better performance of flood management. Increasing the frequency of flooding only highlights the great need to mitigate the floods, as the benefits (avoided damages) become frequent, allowing greater investments.
    I participated in a study to develop a methodology of economic-financial feasibility analysis of urban drainage and flood control works in 2010 for the IDB. A comprehensive methodology that can determine the benefits to various solutions for flood mitigation.
    With climate change in focus, flooding and scarcity of water will be the challenge of the future, the sooner deploy and use the technologies that can assist in mitigation and management, the less impact on societies. Flooding and scarcity can become frequent.
    Water has an intangible social value, as well as in the supply of communities as in the maintenance of minimum environmental services and also for recreation.
    Governments need to create tools for the private sector to be more motivated to act in flood mitigation and management. As well as in water supply and treatment.
    I believe the IDB plays a key role in bringing the private sector closer to public services, as in the case of program funding, partnerships and investment in regions that lack basic structures.
    Congrats for this topic.

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