Total US economic losses from the flooding in California in January 2023 could reach US$5-7 billion, according to Moody’s RMS®, the global catastrophe risk modelling and solutions company.
Moody’s RMS also highlighted the low number of households in California with flood insurance and the rising risk of flooding across the state.
“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,” Firas Saleh of Moody’s RMS said.
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.
A series of extratropical cyclones starting December 26, 2022, impacted the West Coast of the U.S, which resulted in heavy rainfall, overtopped rivers, flash floods, levee breaches, mudslides, fallen trees, debris flow, and heavy snow at high altitudes, together with some wind damage.
The rainfall associated with these extratropical cyclones was exacerbated by a band of high atmospheric water vapour, also known as an ‘atmospheric river’.
The rainfall intensity in California was so extreme that several locations in central California set new three-week rainfall records 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.
Less Than 2% of California Households Have Flood Insurance
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 per cent – 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 per cent 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 are infrequently revised, Moody’s RMS said.
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.
Firas Saleh, Director, Product Management, Moody’s RMS, concluded: “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.”