Global catastrophe and risk modelling solutions firm, Moody’s RMS estimates total US economic losses from the recent California flooding to be between $5-7 billion.
This estimate reflects inland flood impacts for the US, which includes damage to infrastructure. The insured losses are anticipated to be between $0.5-1.5 billion, including losses to the National Flood Insurance Program (NFIP) and the private flood market.
Since late December, California has been hit with extreme rain and winds, leaving entire neighbourhoods under water, downing trees, and causing severe mudslides.
Moody’s notes that the overall economic loss estimate is based on an event reconstruction using its US Inland Flood HD Model. The overall loss also reflects property damage, contents, and business interruption, across residential, commercial, industrial, automobile and infrastructure assets.
Moody’s explains that the storms are being driven by an atmospheric river, which is a windy region of the Earth’s atmosphere that can transport moisture for miles.
The rainfall intensity in California was so extreme that several locations in central California set a three-week record of rainfall and certain locations even received their annual average rainfall totals in less than one month.
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.
In addition, Moody’s notes that the continuous drought preceding these extratropical cyclones events adds an extra dimension of complexity for reservoir operators and residents.
Moody’s highlights that 2022 was the second driest year in over 128 years for certain areas – such as Santa Cruz – and was classified under ‘extreme drought’ according to the National Integrated Drought Information System.
However, while there has been a significant increase in the water levels of major reservoirs and snowpack, it remains unlikely that California is out of the drought, especially when it comes to aquifer replenishment, given the last three years of extreme drought and excessive groundwater withdrawals.
Mohsen Rahnama, Chief Risk Modeling Officer, Moody’s RMS, said: “To put this event in historical perspective with the 1862 ARkstorm, although some impacted areas are similar, the ARkstorm produced much more severe precipitation, for example, 35 inches (88.9 centimeters) of precipitation in San Francisco compared to ~ 15 inches (38 centimeters) from this event. Another important mitigating factor for this event is the presence of flood defenses, which were mostly absent in 1862.”
Moody’s states that only a relatively small proportion of the economic damage is expected to be covered by insurance., with the overall number of households in California with flood insurance standing at less than 2%, a figure that has been steadily declining.
Further, Moody’s highlights how as of August 2022, there were only 193,281 residential National Flood Insurance Program (NFIP) policies in place, representing a decline of around 5% as compared to 2021.
Moody’s also addresses how 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. However, the major issues that surround this is are that SFHA boundary flood zones do not always reflect the current flood risk, and they are infrequently revised.
Additionally, other contributing factors that impact 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.
Firas Saleh, Director, Product Management, Moody’s RMS, added: “Extreme drought leads to soil compaction which means less infiltration and more runoff, hence less aquifer recharge and higher risk of flooding. Nowhere is safe from flooding in California today. If we’ve learned anything from this extreme rainfall and subsequent damage, it’s that even perceived low-risk flood zones are still flood zones. If it rains, it can overflow.”
