Rising sea levels: how can insurers respond?

Vol: 45 Issue: 4 | December 2022

IN SHORT

• 267 million people worldwide live on land that’s currently less than two metres above sea level. 
• Insurers are heavily influencing change around sea-level-rise risk mitigation.
• Cutting-edge data and modelling are helping communities select the interventions most suitable for their area and increasing awareness of the issue of sea-level rise. 

Sea levels have changed dramatically throughout our planet’s history. The United Nations’ Intergovernmental Panel on Climate Change (IPCC) says that since the end of the last ice age, sea levels have risen around 120 metres. So, why are we concerned about a relatively small rise of another 55 to 200 centimetres — according to the IPCC — by the end of this century? 

‘There was that 120-metre rise following on from the last ice age. Then, for the last 6,000 years, sea levels have remained relatively stable,’ says Dr Kathleen McInnes, senior research scientist at CSIRO. 

‘The problem is that it’s in that small window — in that 6,000 years — humans settled, and they settled mainly in coastal zones.’ 

A 2021 paper published in Nature Communications found that 267 million people worldwide currently live on land less than two metres above sea level. 

‘The beginning of the Industrial Revolution saw sea levels once again beginning to rise, and the rise is human induced,’ McInnes says. ‘The concern now is that we can’t just pick up our things and move away from the coast. We’ve got very established, very vulnerable cities.’ 

What is worth saving? 

Currently, sea levels are rising 3.6 millimetres annually, McInnes says. While this may seem inconsequential, the cumulative effects of rises year-on-year are felt intensely during particular events. Climate change and sea-level rise isn’t linear. Instead, as both temperatures and sea levels increase, they combine to create exponential growth in the incidence of storms (and related storm surges), higher tides and flooding. Storms and high tides can also coincide, further increasing the sea level for those periods. 

‘These can be tidal extremes, storm surges or high-wave events, and so on,’ McInnes says. ‘Also, the combination of sea-level rise with a riverine flood event combines to increase flooding in coastal areas.’ 

Inhabited areas that previously had low sea-level variability naturally built infrastructure around that small range, she explains. As sea levels rise, that infrastructure no longer does the job. Flood mitigation, then, becomes a matter of cost benefit. Is the village, town, suburb or city worth saving? In some places, seawalls have been the go-to solution to mitigate flood risk. However, as 50- and 100-year storm and flooding events occur much more frequently, our existing seawalls may no longer be fit for purpose.  

For instance, seawalls protect 360 km of the Massachusetts coastline. Authorities anticipate a 25–36-centimetre sea-level rise in the region by 2050. If the area experiences a storm similar to the 2015 North American blizzard again, researchers say the seawalls would need to be at least 90 centimetres taller than they currently are to prevent flooding. This would mean that seawalls in some places would need to more than double in height. But what may appear to be a simple fix is anything but. 

‘The engineering has to be different for the higher seawall,’ says Dr Peter Sousounis, vice president and director of Climate Change Research at Verisk Extreme Event Solutions.

‘There’s more pressure on the wall from the greater depth and volume of water. Increasing a seawall height from one to two metres isn’t just double the cost. It’s around a factor of 10 higher.’ 

Islands in the stream 

Climate-change and sea-level-rise modelling is informing some planning and construction decisions, to help future-proof new infrastructure and make it an acceptable insurance risk. Dr Jacqueline Balston, director of sustainability at the Institute of Public Works Engineering Australasia and director of Jacqueline Balston & Associates, says: ‘At Brisbane Airport, the recently opened new runway has been constructed 1.5 metres above the minimum regulatory requirements, which is great planning.’   

Planning decisions like this need to be part of a broader strategy, addressing sea-level-rise risk for the whole region, Balston says. The IPCC report says with ‘high confidence’ that by 2150, it is likely sea levels will rise 1.5 metres over today’s levels. It’s also possible, but in the low likelihood range, that sea levels will rise five metres by this time. 

‘Although the useful life of a runway at a major airport varies from 20 to 40 years — and we can potentially keep lifting it — other assets in the apron around it will also be affected as the sea rises,’ says Balston. ‘There will come a time when they need to be raised or protected by seawalls. At some point that becomes untenable. How do you connect stranded assets together if the water is rising all around them?’ 

Balston recalls a sea-level planning project her firm worked on in a small coastal town in South Australia that highlighted a similar issue. ‘There’s a seawall and there was discussion about raising it. Digital elevation modelling shows a little strip of higher land where several of the houses are sited,’ she says. ‘[Those houses] may be okay for the next 100 years, but the road leading to them won’t be — it will be more and more regularly submerged with rising tides.’  

The project raised several major questions for the community.  

The issue is even more pressing in parts of Asia, McInnes says, because many older cities were built on sedimentary ground that naturally subsides — plus, fresh water typically comes from pumped groundwater, further compounding the problem. 

The city of Jakarta in Indonesia, for example, is sinking much faster than the sea around it is rising. This is one reason that a new capital called Nusantara is now being developed 1,300 kilometres away, on the island of Borneo. 

Communities step up to the plate 

‘We need to look at where the exposed risk is,’ says Dr Milan Simic, executive vice president and director of International Business Development at Verisk Insurance. ‘You can have a hazard in terms of sea-level rise, but if there is no insured property, it doesn’t matter from the insurance point of view. 

‘In Indonesia, in terms of coastal areas that are heavily populated, we’re looking at Jakarta. It represents 60 to 70 per cent of insured exposure for all of Indonesia. That’s why Jakarta is more of an emphasis than some remote islands.’ 

The same is true, Simic says, for heavily populated eastern seaboard cities in China and coastal cities in Australia and the United States, particularly low-lying Miami. 

Some communities are building seawalls and surge barriers. Some are reconsidering building design — the classic Queenslander house designed on stilts, McInnes says, was an excellent design for its environment until homeowners began filling in the downstairs area to extend.  

Others such as Singapore, where 30 per cent of land is less than five metres above sea level, are advancing into the sea, reclaiming land that is underwater and building it higher.  Singapore is also creating nature-based buffer zones. These include urban green spaces along riverbanks and restored wetland ecosystems, rather than concrete water-management infrastructure. 

In Australia, where 3.5 per cent of dwellings fall under the international definition of high risk, permeable pavements and green rooftops are being trialled. In New Zealand, where 17,600 homes are under threat in Auckland alone, there is growing public support for some form of financial assistance for the relocation of communities from low-lying areas. 

And in Germany, researchers are working on self-erecting flood protection systems that sandwich a buoyant, foam-type material between two layers of concrete. In everyday use it operates as a footpath or road. In flood environments it floats upwards, rotating around a hinge to form a waterproof wall. 

The potential solutions are flowing thick and fast, but judging by the increasing number of floods, beach erosion and storm surge events, so is the water.  

Insurers as partners

Insurers are considered part of the solution. Leading firms have been tracking the likely effects of global warming since long before it hit the headlines. 

‘Twenty years ago, I saw a presentation by a speaker from Munich Re talking about climatic and geological hazards,’ says Balston. ‘The data went right back to the volcanic eruption of Mount Vesuvius in AD79, which is incredible. It was clear that although geological events had not increased in frequency, climate-driven ones had.’ 

The role of insurers in the fight against rising sea levels can be classified into four main categories: 

1. Providing access to flood insurance 
2. Increasing awareness of the risks of sea-level rise to individual assets 
3. Developing risk responses with communities and authorities
4. Investing in technology and other interventions to mitigate flood and climate-change risk. 

For example, in markets as disparate as the US and India, insurers are addressing the immediate need for access to insurance cover. In India, farmers can buy low-cost index-based flood insurance that has been developed with the help of satellite imagery. The International Water Management Institute is working with two insurers — Green Delta and WRMS — to provide cover to farmers in India and Bangladesh. The insurance is also bundled with a supply of moisture-tolerant seeds, which have a better chance of surviving heavy rains and flooding. 

In the US, many homeowners rely on outdated flood risk assessments from the Federal Emergency Management Agency and may have little or no insurance. As flood events became more common, Neptune Flood Insurance was launched to make it easier and faster to buy private flood insurance online. The brand promises you can get cover in ‘two minutes or less’ and has a partnership with satellite imagery company ICEYE to monitor water depth changes close to insured properties in real time, when flooding occurs.  

Insurers are raising awareness of sea-level and flooding risks by sharing their own data and modelling with individuals, communities and authorities. In New Zealand, for instance, some property owners get a flood risk rating for their property. In South Australia, the Local Government Association Mutual Liability Scheme requires each of the councils it works with to conduct a climate-change risk assessment process, and implement mitigation activities to address the risks detected. 

‘The Insurance Council of Australia has been co-operating on projects with South Australian councils to identify climate change risks to infrastructure,’ says Balston, ‘so there’s a lot of valuable information being shared and a lot of work being done to work out how to best tackle the problem.’ 

Sharing data allows communities to develop the best possible response to sea-level rise in their area, whether that’s a natural barrier like wetlands and mangroves or man-made intervention, including levees and seawalls. Managed retreat — where communities accept that at some point certain homes and infrastructure may need to be abandoned completely — may also be a consideration. 

Insurers play a major role in influencing change, McInnes says, even simply by refusing to insure properties for certain risks in specific areas. 

‘They’re not necessarily saying you can’t live here anymore,’ she says. ‘They’re saying if you want to build here, let’s get some really good design principles into houses. Certainly, in the UK, the insurance industry was quite involved in funding research to ensure people had good access to innovative design.’ 

Lastly, insurers have the investment clout to make a difference by supporting the development of technologies and methods of mitigating flood risk and addressing the greater issue of climate change. Many insurers have already mapped out their own paths to net zero, and are actively investing in green tech, while phasing out support for coal and oil. 

Says McInnes: ‘There are numerous ways that insurers become one part of the solution, and their role will only become more important over the next few decades.’ 

Methods of sea-level and flood management 

Across the world, countries are using different natural and man-made methods of water management for sea and flood management. 

Mangroves 

• Mangroves are trees that grow in saltwater, with tangled root systems that bind the soil. 
• Where / Pacific islands, US, China, Hong Kong, India, Bangladesh, Vietnam, Mexico. 
• Pros and cons / Mangrove forests reduce erosion and act as a barrier to waves and storm surge. However, rising sea levels stunt their growth, and they would need access to lower-lying ground in order to spread. 

Dunes 

• Coastal back dunes — sandy hills with sea grasses and other plant life — can act as a buffer between the surf and land, and prevent erosion. 
• Where / US, New Zealand, Australia, Ireland, South Africa, UK. 
• Pros and cons / Sand is often readily available, and plants make the back dunes stable. However, in some places there is no space for them: the back dunes have already been flattened and built on or paved. 

Seawalls and levees 

• Hard structures / embankments built along the shoreline to act as a physical barrier to high seas and storms. 
• Where / New Zealand, Pacific islands, US, Canada, Australia, Netherlands, Pakistan. 
• Pros and cons / While seawalls provide protection for shoreline property and infrastructure, they also deflect wave energy to neighbouring areas, and can cause more beach erosion. 

Groynes 

• A structure built perpendicular to the shore, to interrupt water flow and trap sediment. Often, there are a series of groynes close together on a coastline to widen the beach(es). 
• Where / UK, US, Malaysia, Philippines, Australia. 
• Pros and cons / Groynes can prevent beach erosion, but have to be very well designed to operate as intended — with no water passing on the land side. 

NZ insurer’s climate risk traffic light system 

Ron Mudaliar, Tower’s chief underwriting officer, reveals the lengths the insurer has gone to in helping create solutions to challenges presented by sea-level rise. 

In New Zealand, Tower Insurance has introduced a ratings system that measures how flood- or fire-prone a home is. Each customer receives a red (high risk), amber (medium risk) or green (low risk) rating, which is then reflected in the insurance premium they pay. 

Says Mudaliar: ‘Lack of insurance cover is not a good result for anybody. Success is about identifying issues and figuring out how we mitigate them, for continuance of cover. We’ve been working with Treasury and with other government departments on that. We talked to them about our risk-based pricing for flood before we actually went out and deployed it.’ 

He says people need to understand how their properties are affected by flood and/or earthquake risk.  

‘It’s not easy for homeowners to understand the wider risk and perils, such as flood and earthquake, linked to their home. We wanted to change that. We developed a tool that better matches premiums to individual risk, with homes with lower flood or earthquake risk, or that had mitigated risk through work done on the property or work done in the region by the local government, receiving reductions in the flood and earthquake portions of their premiums.’ 

Tower estimated that around 90 per cent of customers would see a small reduction in their premium costs, while around 10 per cent would see modest premium increases. 

‘Through our work with Treasury, we’ve been part of the national adaptation planning,’ says Mudaliar, ‘and through our development of the detailed modelling tool, we’re improving transparency and understanding of risk at an individual householder level.’  

Read this article and all the other articles from the latest issue of the Journal e-magazine here