Low Take-Up on Flood Cover Minimises Losses in California

Moody’s RMS®the leading global catastrophe risk modeling and solutions company, estimates total U.S. economic losses from the recent California flooding at US$5-7 billion. This estimate reflects inland flood impacts for the U.S. and includes damage to infrastructure. The insured losses are anticipated to be between US$0.5-1.5 billion, including losses to the National Flood Insurance Program (NFIP) and the private flood market.

The overall economic loss estimate is based on an event reconstruction using the Moody’s RMS U.S. Inland Flood HD Model and reflects property damage, contents, and business interruption, across residential, commercial, industrial, automobile and infrastructure assets.

The rainfall intensity in California was so extreme that several locations in central California set 3-week record rainfall and certain locations received their annual average rainfall totals in less than one month. This led to widespread flash floods and river overtopping, for example, water depths in the San Lorenzo River upstream of Santa Cruz rose by more than 16 feet (4.87 meters) in less than eight hours. This was the highest recorded water depth for the San Lorenzo River since records began some 85 years ago.

Infrastructure damage, which is accounted for within the economic loss estimates, was extensive. State highways and local roads bore the brunt of the damage due to a combination of flooding and mudslides. Trees previously stressed by dry conditions were uprooted due to high water velocities, saturated soils and heavy winds, which also caused damage to power networks, as well as to cars and properties.

The continuous rainfall and compound impacts from riverine-groundwater-coastal interactions also resulted in prolonged flooding for certain urban coastal areas of California.

LOW RATE OF INSURED PROPERTIES MINIMISES EXPOSURE

A relatively small proportion of the economic damage is expected to be covered by insurance. The number of households in California with flood insurance stands at less than two percent – a figure that has been steadily declining. As of August 2022, there were only 193,281 residential National Flood Insurance Program (NFIP) policies in place, representing a decline of around five percent as compared to 2021.

These low flood insurance take-up rates are attributed to the fact that only homeowners holding a government-backed loan who live in Special Flood Hazard Areas (SFHAs) are mandated to obtain a flood insurance policy. But these SFHA boundary ‘flood zones’ do not always reflect the current flood risk, are backward-looking, and infrequently revised.

Other factors impacting flood insurance take-up rates include, but are not limited to, affordability, the misconception that flood is covered under a standard homeowners’ policy, and a lack of understanding of the associated incurred cost from flooding.

About alastair walker 10567 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

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