What if there was a megadisaster?

Precipitation-induced inland flood causes more property damage in the United States than any other natural disaster. On average, the U.S. experiences ground-up losses from precipitation-induced inland flood of more than $25 billion annually, according to the AIR Inland Flood Model. With continued development (much of it in flood-prone areas), rising property values and increasing numbers of extreme wet-weather events, this figure is expected to increase.

To illustrate the high risk of loss from inland flood in the United States, AIR created a megadisaster scenario that features an entire year of precipitation-induced inland flood events from the AIR U.S. inland flood model's stochastic catalog, with an aggregate ground-up loss of $100.8 billion — a loss level that has an exceedance probability (EP) of one percent (100-year return period). The scenario includes a wide range of inland flood events, with on- and off-floodplain flooding in several major river basins, short- and long-duration storm systems, and failed flood defenses. As shown in Figure 1, every state in the contiguous United States plus the District of Columbia experienced inland flood losses during the modeled year.

Inland floods in the United States

A high-frequency peril (sometimes exacerbated by snowmelt), precipitation-induced inland floods vary in size, scale and duration, and occur both on floodplains and off. Ranging from localized flooding, waterlogged fields, and briefly blocked roads to widespread inundation and destruction of structures and automobiles, inland floods render residences uninhabitable and disrupt commercial and industrial businesses.

Large land areas containing multiple river basins often flood in sequence as rivers are affected by multiple storms occurring over many weeks. Inland flood can be localized or quite widespread, impacting hundreds of counties through a swath of states. In addition, many variables affect the likelihood and intensity of inland flood, including soil type, antecedent soil conditions, drainage conditions, land use, land cover, and flood defenses.

The 3.1 million square mile land mass of the contiguous United States features widely varying types of topography and geology, with millions of miles of rivers and streams (some tidal) and tens of thousands of lakes and reservoirs. Regional climate — which varies from tropical to desert in the U.S. — has a major impact on flood risk, affecting the amount of precipitation an area receives, the amount of snow on the ground when spring rains begin, and the drying time for buildings and contents.

Approximately 3,800 U.S. municipalities are located on floodplains, although many locales off floodplains are also subject to flood damage and loss. Off-floodplain losses are more frequent in urban areas, where the high percentage of paved areas contributes significantly to runoff.

Thousands of miles of levees and other flood defenses have been constructed throughout the country; however, significant flood risk can still exist in areas with a high level of flood mitigation because of the possibility of failure of levees, dams, pumping stations, or other flood defenses.

Exposure vulnerability

The vulnerability of buildings to flood damage depends on many factors including construction and occupancy, building height and age. In general, damage due to inundation tends to be nonstructural, affecting interior finishes, such as drywall, plaster, insulation, and flooring in addition to building contents. Basements increase the risk of damage to both contents and the building and contribute significantly to flood vulnerability. In more serious inland flood events, high-velocity flood and debris can compromise the structural integrity of buildings, which can lead to the collapse of foundations and the displacement of structural walls.

Damage to residential buildings in the U.S. is influenced by construction type, elevation of the first floor in the structure, the presence of a basement, and non-engineered components, such as garage doors and main doors. Single-family homes across the country are dominated by wood-frame construction, although masonry is also commonly used. Wood and unreinforced masonry construction typically perform very poorly when exposed to high inundation depths over extended periods.

Unlike residential structures, commercial buildings are often engineered and built to stricter standards, and are therefore less vulnerable than single-family homes. Nevertheless, mechanical, electrical and plumbing (MEP) systems can experience severe damage, which results in high losses. More than half of the commercial buildings in the U.S. are steel or concrete, which perform better than wood or masonry.

The U.S. experiences considerable diversity in storm climate. Communities most frequently affected by floods generally establish flood-related building regulations and have better mitigation practices. Flood-resistant design and construction, as specified in building codes, complement the National Flood Insurance Program minimum requirements for structures situated in flood-hazard areas. However, construction quality and code enforcement varies widely across the country.

Estimating the Impact

The $100.8 billion megadisaster scenario encompassed 73 distinct flood events of varying size and intensity during the modeled year. Losses occurred in every state in the lower 48 and the District of Columbia, and took place in every month of the year. As shown in Figure 1, state-by-state losses ranged widely.

Figure 1. Modeled ground-up loss by state for an inland flood megadisaster year in the U.S., a one percent EP modeled year with $100.8 billion in ground-up losses. (Source: AIR)

By line of business, residential (including mobile homes) and commercial (including industrial assets) shared in the losses almost equally, as seen in Figure 2.

Figure 2. Ground-up loss (in USD billions) by line of business for the modeled year. (Source: AIR)

Figure 3 shows the seasonal distribution of the flood events during the year. Inland flood seasonality — which affects the time it takes to dry a building — can have a sizable effect on losses.

Figure 3. Approximately one-third of the inland flood events in the modeled year occurred in cooler months, which can mean slower drying times and higher losses.

The second most costly event during the modeled year is a February storm that reached from Texas to Connecticut and affected 19 states, as shown in Figure 4. With ground-up losses of $22.4 billion, this lengthy, seven-day event highlights some of the many complex considerations in assessing inland flood loss potential. Progressing from northwest Texas to Connecticut, flooding caused damage in more than 600 counties, covering 218,834 square miles. Impacts included riverine flooding in unprotected areas, failed levees (in Nashville, Tennessee and Louisville, Kentucky), and off-floodplain flooding from excessive precipitation.

Figure 4. This February storm affected 19 states, with ground-up losses of $22.4 billion. (Source: AIR)

Probing portfolio resilience

The scenario year detailed here is not an extreme occurrence or tail event. Although the industry ground-up loss for this inland flood scenario has a modeled annual EP of about one percent (which equates to a 100-year return period), far greater losses are possible.

Responsible risk management includes preparing for a wide range of loss scenarios. Using model scenarios to probe a portfolio's strengths and weaknesses will help insurers respond effectively when disaster does strike. Being attentive to best practices for an inland flood model can help ensure that companies achieve the most realistic loss estimates:

• Strive to obtain highly accurate exposure data.

• Capture secondary risk characteristics.

• Understand the flood event definition.

• Anticipate business interruption losses.

• Address the potential for increased losses due to demand surge.

• Be aware of potential losses from non-modeled sources.

Catastrophic flood events and the property damage they cause take place regularly in the U.S. Advanced catastrophe models — thoroughly validated with data from a wide variety of sources — help insurers and reinsurers gain a global perspective on their overall risk from inland flood. By carefully analyzing model results, risk managers can prepare for a range of contingencies including megadisasters.

Boyko Dodov, Ph.D., is assistant vice president and director of flood modeling at catastrophe modeling firm AIR Worldwide.