(August 9, 2013) The effects of the giant dam’s operations on water flow are ramping up the risks of damage from storm surges in Shanghai, says expert. Meanwhile, China’s flood loss potential sounds warning bells for insurers.

Global reinsurer Swiss Re has named China as the world’s #1 high-growth market at risk from potential flood damage and a source of concern where insured losses could count in the multiple billions. [See China faces biggest flood risk among world’s high growth markets by Asia Insurance Review].

In a recent report titled, “Flood Hotspot: Focus China,” Swiss Re has found that, of all the high growth markets, China’s flood loss potential is the greatest owing to the size of its economy and the country’s level of foreign direct investment. Many of its manufacturing centres are at threat from flood risk, observes Swiss Re, particularly the country’s Pearl River area — an economic and manufacturing hub comprised of three major rivers surrounded by densely populated cities — as well as Shanghai, China’s most populous city.

Both the Pearl River Delta and Shanghai are exposed to storm surges and torrential rainfall which could lead to massive insurance losses. Such losses would affect insurers outside of China facing claims from foreign-owned companies who purchase insurance in their home markets with cover for their Chinese operations, says the report.

Meanwhile, is flood risk in Shanghai exacerbated by the massive Three Gorges Dam? According to hydrological expert Dr. Philip B. Williams, currently based at the University of California – Berkeley, there is “indeed” a link between the dam’s alteration of water outflows and inflows and the area’s diminished natural buffer against storm surges, making the impacts of those surges worse.

Over time, he confirms, the dam’s operations have contributed to the erosion of the Yangtze delta near downstream Shanghai by reducing the outflow of Yangtze water into the Yellow Sea which, in turn, permits the intrusion of salty, corroding sea water into the delta area.

“Rapid erosion of offshore mudflats is now occurring, ultimately resulting in the erosion of marshes that buffer storm surges,” he says.

Insurers take note, the Swiss Re report warns:

The Pearl River area alone has a higher insured loss potential than all of Thailand, the country with the second highest loss potential. It faces the threat of storm surge and river flooding, which can cause insured losses of USD 35 billion and USD 9 billion, respectively. Shanghai is similary exposed to storm surges and torrential rainfall, with insured loss potentials reaching USD 10 and 6.5 billion.