Guest Blog: Jane Warring, senior counsel, Clyde & Co. U.S. LLP
A few weeks’ back I attended my first Exceedance. If you go to a new conference, you are never entirely sure what to expect. Suffice it to say though, it was like no industry event I have ever attended — and in a good way.
Above all, though, I was blown away by the sessions. I have spent almost 15 years litigating first-party property/coverage disputes at both the trial and appellate levels. So, I know a thing or two about the interplay between exposure, risk and coverage. But Exceedance was a whole new level of learning: information-rich content, transparent discussions, engaged delegates and high-quality speakers.
Like many attendees, I filed a trip report on my return to the office. I wanted to make sure my colleagues who lead our resilience work benefited from my learnings. This got me thinking. What were some of the top takeaways from #Exceedance18?
But slowly, the hurdles to private sector involvement are starting to clear, through the combined efforts of the industry, FEMA, and even private citizens. It will be an exciting time for private insurers and Americans if the new flood reform bill, H.R. 2874 passes through the Senate, as measures in the bill include increased acceptance of private flood insurance by mortgage providers, easing of fixed claims limits, and open source access to FEMA’s extensive claims database.
Time is tight for the National Flood Insurance Program (NFIP). A three-month extension of the NFIP signed by President Donald Trump to help devise a long-term financial solution for the program, expires on December 8. In the lower chamber of Congress, the 21st Century Flood Reform Act, which would update and reauthorize the NFIP, was passed (237-189) by the U.S. House of Representatives on Tuesday, November 14. The fate of the scheme now rests with the Senate, allowing just over three weeks in total to make a choice; adopt the House bill or a version of it; advance its own bill, or simply do nothing.
Congress has an opportunity to reform the NFIP; to build a public-private partnership and transfer risk to the private insurance sector. This bill both entices private insurance firms into flood underwriting, and provides more power to the consumer to quantify and manage their own flood risk.
Hurricane Irma has placed flooding firmly back on the agenda for Florida. Irma did affect the entire state and flooding was widespread, affecting areas from Brickell in Miami’s financial district, to the northern counties. With dire storm surge forecasts predicted for the Gulf Coast, a new storm surge record was set in Jacksonville, but places such as Tampa, St. Petersburg, Naples, and Fort Myers experienced shallower flood depths than the predictions.
Florida homeowners are more aware of flood risk than most — and are well versed in buying flood insurance. For those who live in high-risk flood areas and have a mortgage from a federally regulated or insured lender, it is a mandatory requirement to purchase flood insurance from either the National Flood Insurance Program (NFIP) or alternatively through a private flood insurer.
Shortly after its landfall, my colleague, Ben Brookes, and I drew attention in the RMS live Harvey updates to the fact that the storm was “not a wind event.” Like Sandy, flood losses, we wrote, would quickly overtake wind losses.
We recalled how Dr. Robert Muir-Wood had insisted back in February 2014 that “water is the new wind.” Those with exposure in harm’s way, he argued, needed to “get to grips with the details of modeling and managing hurricane-driven flood risk.”
RMS continues to refine its estimate of the insured losses from Harvey. In the meantime, I think it’s worth looking in more detail at the potential exposure of the National Flood Insurance Program (NFIP) to this major hurricane.
Last Monday, Daniel wrote that it was likely that “Harvey will produce at least US$4 billion in flood claims, triggering the NFIP reinsurance program.” With NFIP up next month for reauthorization and reform, this is an important point — and not just for the 25 reinsurers underwriting over US$1 billion of NFIP’s claims.
Breezy Point, N.Y., Oct. 31, 2012 – Street scene after Hurricane Sandy. Source: FEMA
Katrina. Sandy. Matthew. We tend to remember the big-name storms that take over the news cycle for weeks, offering up poignant images of rescued families.
Yet many of us barely notice losses racked up annually from flooding events all over the U.S.: flash floods in the Midwest and Northeast, torrential rains in bone-dry Houston, dam spillways exploding in formerly drought-stricken California.
RMS modeling reveals the wider risk of U.S. flooding, and a significant protection gap
A combination of heavy rainfall and melting snow had filled Lake Oroville in northern California near to its capacity. Dam operators released water through the main spillway to control the reservoir level, but a 300-foot hole unexpectedly emerged, and the surrounding soil was eroded by the water gushing out. Spillway outflows were reduced to stop the erosion.
Oroville Dam after heavy rainfall in mid-February (Source: California Dept of Water Resource)
But this made the problem with rising reservoir levels worse, as the water then began to flow over the emergency spillway. On February 12, 2017, at least 188,000 residents were told to evacuate, while trucks and helicopters dumped over 1000 tons of material per hour on the weakened structure to prevent a more significant breach. As water levels in the reservoir subsided, the risk reduced.
With no massive discharge or flooding, insurance losses are expected to be limited to coverage for business interruption, loss of use, or additional living expenses (ALE) incurred by the evacuees.
It could have been far worse if the dam had completely failed – this was a worrying near-miss.
Dam failure, though rare, is not a negligible risk. In fact, a similar near-miss situation occurred during the 1971 San Fernando earthquake where the lower Van Norman Dam was a near-breach and forced the evacuation of 80,000 people. Our modeling teams decided to model a counter-factual version of February’s Oroville Dam breach, in which either (i) the dam continues to disintegrate in a controlled manner or, (ii) in the worst-case scenario, it collapses.
Our flood modelers, Ye Tian and Sonja Jankowfsky, simulated these ‘what if’ scenarios over a 72-hour cycle, using reservoir water level data from the California Data Exchange Center’s Department of Water Resources, and their own estimation of the lake’s bathymetry (contours of the lake bed) and capacity.
The worst-case scenario is modeled assuming the height of the dam wall becomes ‘zero’ instantaneously – for example, as might happen if there was an explosion due to sabotage. For the controlled breach scenario, the dam wall is gradually lowered at two meters per hour to simulate what could have happened had the erosion of the dam continued.
In our modeling, the amount of discharged water would be expected to overwhelm local flood control measures over 100 miles downstream, as was evidenced by the widespread flooding in the simulations. We estimate that under either scenario, about $21.8 billion of building value would be at risk, which, for the communities near Oroville, would be a huge problem because much of it is uninsured.
Insurance coverage is one of the most effective ways of ensuring a region re-bounds quickly after disaster, but in the Oroville region flood insurance penetration is fairly low. Most property owners rely on the National Flood Insurance Program (NFIP), which is most commonly sold to homes in the 100-year flood plain along the Feather River.
FEMA 100-year flood zones
Potential inundation depths simulated for a complete and instantaneous collapse of the Oroville Dam
This flood plain is shown as blue areas in this map. Compare that to the map below.
This map (right) shows modeling from the RMS ‘what if’ scenario of the Oroville Dam breach. The 100-year flood plain (map above) covers significantly less area than that which would be inundated if the dam breached (map right).
So, why does this matter? Residents living outside the 100-year flood zone are not required to purchase flood insurance, and therefore most do not. These areas include the towns of Biggs, Gridley, Live Oak, Oroville, South Oroville, Thermalito, and Yuba City. And yet as RMS modeling shows, many of those communities would have experienced major flooding if the dam had breached completely.
The Protection Gap
It is obvious that NFIP flood zone maps do not include dam failure scenarios, and yet these failures typically inundate a much wider area beyond the naturally occurring flood plain, because the volume of water and speed of release overwhelms natural and man-made defenses.
FEMA cannot quickly nor easily change the flood maps to incorporate this type of risk explicitly. At RMS, we are developing tools to quantify these kinds of extended risks to allow the private flood insurance market to step in and fill the current gaps in coverage.
Thankfully, our ‘what if’ scenario didn’t become a reality. But it highlights the risk of aging infrastructure which may not be able to withstand extreme weather events. Nationwide, the National Inventory of Dams indicates that of the 90,580 situated across the U.S., over 30% exhibit significant to high hazard potential due to structural deterioration.
[Note: clients can obtain modeling files for the Oroville Dam analysis from RMS account managers. This blog has been edited to provide further detail on the initial dam failure.]