“ Assessment of economic flood damage ”

Damage assessments of natural hazards supply crucial information to decision support and policy development in the fields of natural hazard management and adaptation planning to climate change. Specifically, the estimation of economic flood damage is gaining greater importance as flood risk management is becoming the dominant approach of flood control policies throughout Europe. This paper reviews the state-of-the-art and identifies research directions of economic flood damage assessment. Despite the fact that considerable research effort has been spent and progress has been made on damage data collection, data analysis and model development in recent years, there still seems to be a mismatch between the relevance of damage assessments and the quality of the available models and datasets. Often, simple approaches are used, mainly due to limitations in available data and knowledge on damage mechanisms. The results of damage assessments depend on many assumptions, e.g. the selection of spatial and temporal boundaries, and there are many pitfalls in economic evaluation, e.g. the choice between replacement costs or depreciated values. Much larger efforts are required for empirical and synthetic data collection and for providing consistent, reliable data to scientists and practitioners. A major shortcoming of damage modelling is that model validation is scarcely performed. Uncertainty analyses and thorough scrutiny of model inputs and assumptions should be mandatory for each damage model development and application, respectively. In our view, flood risk assessments are often not well balanced. Much more attention is given to the hazard assessment part, whereas damage assessment is treated as some kind of appendix within the risk analysis. Advances in flood Correspondence to: B. Merz ([email protected]) damage assessment could trigger subsequent methodological improvements in other natural hazard areas with comparable time-space properties. 1 Need for flood damage assessments Traditionally, design standards and structural flood defence measures were the dominant flood management approaches. Structural flood defence measures, such as dikes and retention basins, were designed in order to control up to a certain, predefined design flood, e.g. a 100-year flood. In recent years, this “flood control approach” has increasingly been questioned. New concepts have been developed, usually referred to as “flood risk management” (Merz et al., 2010). The level of protection is determined by broader considerations than some predefined design flood while more emphasis is put on non-structural flood mitigation measures. An important development in this context is a focal shift from flood hazard to flood risk. Traditionally, flood policies concentrated on the control or reduction of flood hazard, i.e. decreasing the probability of occurrence and intensity of flood discharges and inundations. Flood risk management puts a much stronger emphasis on flood risk, where risk is defined as damage that occurs or will be exceeded with a certain probability in a certain time period (e.g. one year). Hence, damage aspects need to be taken into account in any deliberations on flood risk management. Flood damage assessments are gaining more importance within this evolving context of decision-making in flood risk management. They are needed for – Assessment of flood vulnerability: elements at risk in flood-prone areas, e.g. households or communities, are variably vulnerable to floods. For instance, communities which experience floods on a more or Published by Copernicus Publications on behalf of the European Geosciences Union. 1698 B. Merz et al.: Assessment of economic flood damage less regular basis develop strategies for coping with such events. Communities which are not “floodexperienced” often neglect risk mitigation and, hence, develop a higher vulnerability (Thieken et al., 2007; Kreibich and Thieken, 2009). Knowledge about vulnerability of elements at risk is necessary for identifying appropriate risk reduction measures, e.g. development of emergency plans and the undertaking of emergency exercises. – Flood risk mapping: flood risk mapping is an essential element of flood risk management and risk communication. In many countries risk mapping is regulated by law. The Flood Directive of the European Union, enacted in November 2007, requires member states to create both flood hazard and flood risk maps (European Commission, 2007). Although flood mapping is frequently limited to mapping the flood hazard, there is a lively discussion on flood risk mapping, including the potentially adverse effects on asset values, people and the environment (de Moel et al., 2009). – Optimal decisions on flood mitigation measures: safety against floods requires resources, among others large amounts of tax money. It should therefore be secured that these resources are well used economically. This implies that the current flood risk has to be estimated, the potential risk reduction options have to be determined, and benefits and costs of different options have to be quantified and compared. For these steps towards cost-effective risk management, damage assessments are an essential ingredient. – Comparative risk analysis: in a wider context, flood risk reduction competes with other policy fields dealing with risk reduction. For example, a municipality may be prone to different types of natural hazards. A quantitative comparison of different risks within a community or a region, e.g. risks due to flooding, windstorms and earthquakes, can be done on the basis of consistent damage and risk estimates (Grünthal et al., 2006). On a wider perspective, the allocation of resources devoted for safety against floods can be evaluated in terms of the social willingness-to-pay (Pandey and Nathwani, 2004). – Financial appraisals for the (re-)insurance sector: to calculate insurance premiums and to guarantee solvency, expected economic damages and the probable maximum loss (PML)1 of the portfolios of insurers and re-insurers have to be estimated. 1The terms loss and damages are often used interchangeably in the risk management of insurers. Acknowledging the differences between economic as well as physical loss and damage – for example, a damaged good is not necessary lost – we will restrict our usage of the term loss to either insurance contexts (where it is a terminus technicus) or to losses in substance such as loss of life or loss of production. – Financial appraisals during and immediately after floods: in the case of a flood event, disaster management and governments need assessments on the flood damage, in order to budget and co-ordinate decisions about damage compensation. Although flood damage assessment is an essential part of flood risk management, it has not received much scientific attention. The consideration of flood damage within the decision-making process of flood risk management is still relatively new (Messner et al., 2007). Compared to the wealth of methods and available information on flood hazard, flood damage data are scarce and damage estimation methods are crude. This lack frequently leads to transfer of damage data and damage assessment models in time, space and across damage processes without sufficient justification. This paper summarises the state-of-the-art, indicates shortcomings and identifies research directions of economic flood damage assessments. It can be seen as complementary to the review report of Messner et al. (2007) who provide guidelines for flood damage estimation meant for practitioners of governmental authorities and executing bodies dealing with ex-ante flood damage evaluation. This paper is limited to economic flood damage. Ideally, flood risk assessments should comprise all damage dimensions including adverse social, psychological, political and environmental consequences, in order to obtain a comprehensive damage picture. However, risk analyses are frequently limited to economic damages, either because other dimensions are seen of lesser importance or because the available methods are not able to derive reliable estimates. In case risk assessments do not take into account the complete spectrum of damages, the missing dimensions should at least be listed. Good starting points for risk to life assessment are Jonkman (2007) and for health impacts Tapsell et al. (2002), Hajat et al. (2003), and Ahern et al. (2005). Although the paper focuses on flood damage assessment some issues, e.g. risk-based evaluation of mitigation measures, and methodological aspects of damage estimation are also valid for other natural hazards. A comparison of damage intensities scales across different natural hazards was given by Blong (2003a). 2 Basics of flood damage assessment 2.1 Types of flood damage Flood damages can be classified into direct and indirect damages. Direct damages are those which occur due to the physical contact of flood water with humans, property or any other objects. Indirect damages are induced by the direct impacts and occur – in space or time – outside the flood event. Both types of damages are further classified into tangible and intangible damages, depending on whether or not they can be assessed in monetary values (e.g. Parker et al., 1987; Smith Nat. Hazards Earth Syst. Sci., 10, 1697–1724, 2010 www.nat-hazards-earth-syst-sci.net/10/1697/2010/ B. Merz et al.: Assessment of economic flood damage 1699 and Ward, 1998). Tangible damages are damage to manmade capital or resource flows which can be easily specified in monetary terms, whereas intangible damage is damage to assets which are not traded in a market and are difficult to transfer to monetary values. Although the differentiation in direct and indirect, and tangible and intangible damage is commonplace, interpretations and delineations differ (Jonkman et al., 2007). Some examples for the different types of damage are: – Direct, tangible: damage to private buildings and contents; destruction of infrastructure such as roads, railroads; erosion of agricultural soil; destruction of harvest; damage to livestock; evacuation and rescue measures; business interruption inside the flooded area; clean up costs. – Direct, intangible: loss of life; injuries; loss of memorabilia; psychological distress, damage to cultural heritage; negative effects on ecosystems. – Indirect, tangible: disruption of public services outside the flooded area; induced production losses to companies outside the flooded area (e.g. suppliers of flooded companies); cost of traffic disruption; loss of tax revenue due to migration of companies in the aftermath of floods. – Indirect, intangible: trauma; loss of trust in authorities. The costs of direct impacts are generally easier to quantify than indirect costs. Indirect impacts may have effects on time scales of months and years. Further, cascades of higherorder impacts are conceivable such as macro-economic effects or long-term barriers to regional development in frequently flood-affected areas. Rose (2004) discusses the distinction between direct and indirect effects and concludes that this is a subject of great confusion. One has to be careful in order to ensure everything is counted while doublecounting is avoided. In some cases a distinction is made between potential and actual damage (e.g. Smith, 1994; Gissing and Blong, 2004). Actual damage is an estimate of the damage that occurred during a specific flood. Potential damage is defined as the damage that would occur in the absence of any damage reduction measures. 2.2 Spatial and temporal scales Flood damage assessments are performed on different spatial scales: – Micro-scale: the assessment is based on single elements at risk. For instance, in order to estimate the damage to a community in case of a certain flood scenario, damages are calculated for each affected object (building, infrastructure object, etc.). – Meso-scale: the assessment is based on spatial aggregations. Typical aggregation units are land use units, e.g. residential areas, or administrative units, e.g. zip code areas. Their size is in the order of magnitude of 1 ha to 1 km2. – Macro-scale: large-scale spatial units are the basis for damage estimation. Typically, administrative units are used, e.g. municipalities, regions, countries. The classification in micro-, mesoand macro-scale is, on the one hand, related to the spatial extent of the damage assessment. On the other hand, there is a methodological distinction: Mesoand macro-scale approaches differ from micro-scale approaches in their need for aggregation. Damages are assessed for aggregations of objects, e.g. land use units. In order to compare different-scale methods, upscaling and downscaling procedures for the different steps of damage assessment are necessary. The results of a damage assessment depend on the spatial and temporal boundaries of the study. For example, a flood might devastate a community. At the same time, nearby communities might experience economic benefits, since the flood might trigger business and orders that cannot be performed by the flood-affected companies. For example, the 1993 US Midwest floods impeded barges to navigate the river. Because of this lack of barge traffic, several trucking companies gained about 13 million US$ in additional revenue due to the increased demand for road transportation (Pielke, 2000). Other flood beneficiaries were farmers who translated good crops and elevated crop prices into a very successful year (Pielke, 2000). Similar considerations hold concerning the temporal scale. Flood can cause long-term consequences, such as health effects, which are not captured if a too short time horizon of the damage assessment is chosen. The classification in micro-, mesoand macro-scale level has no clear-cut boundaries, and different analysts may set the boundaries in a different way. Closely linked to the spatial scale is the context of the damage assessment (purpose, required reliability, available data, available resources, etc.). Local studies, e.g. cost-benefit analysis for a single water defence structure, usually employ the micro-scale view and derive damage estimates for each flood-prone object. Since this approach requires detailed, local input data and a large effort per unit area, mesoand macro-scale approaches are frequently chosen to cover larger areas. Messner et al. (2007) give recommendations for the choice of the appropriate approach. 2.3 Basic economic principles Economic evaluations of flood damages are purpose-related and therefore context-dependent. The rationales of economic evaluation are different in disaster relief programmes, for insurance contracts, or in public policy decisions. Disaster relief is assessed according to the individual need to recover www.nat-hazards-earth-syst-sci.net/10/1697/2010/ Nat. Hazards Earth Syst. Sci., 10, 1697–1724, 201