California’s Central Valley vulnerable to US$24.1 billion in flood damage, despite drought: Lloyd’s report

A 1-in-100 year flood in the Central Valley region of California could potentially result in US$24.1 billion of damage to floodplain assets, Lloyd’s said on Friday in its latest Innovation Series report.

The flood risk analysis of the region – home to 6.9 million people and US$1 trillion of insurable assets – was written in partnership with JBA Consulting, an environmental and engineering firm. It examined the potential exposure at risk for a 1-in-100 flood by analyzing exposure data against a global flood map. “Experts predict the implications of such a catastrophe, excluding demand surge or business interruption losses, could potentially result in $24.1 billion of damage to floodplain assets,” Lloyd’s said in a press release.

Despite extensive infrastructure in place, the report found that existing flood control structures have a standard of protection less than the 1-in-100-year flood and are likely to be eroded by climate change. Additionally, population expansion increases the pressure for urban development on protected flood plans.

“Despite having over 20,000 km of levees and flood control structures, and some 150 reservoirs on tributaries, significant flood exposure remains in the Central Valley,” the report said. “Most watercourses draining catchments larger than 500 km2 in total are protected on both banks by levees, but the standard of protection is variable.” Analysis of available data for some counties in the Central Valley suggests that, given current and projected operation and maintenance costs, “major budget deficits could arise if all ongoing and planned infrastructure projects are built.”

The report noted that expenditure on flood management reached a high in 2007 of US$2.3 billion, but slowly declined between 2008 and 2013.

Although the Central Valley and much of California remain in the throes of a multi-year drought – the worst drought in 1,200 years – record rainfall in July is a reminder that flooding remains a significant natural peril in the region, the release said.

“The report highlights that the Central Valley’s exposure to flooding is high and likely to increase,” said Hank Watkins, president of Lloyd’s America, in the release. “Ultimately, more sophisticated catastrophe modelling needs to be developed for the Central Valley in order to better understand and mitigate the potential losses that could result from extreme flood events.”

The analysis in the report is intended to help insurers achieve more accurate risk-based pricing, which in turn ensures claims can be paid and promotes responsible risk management, Lloyd’s said, adding that the private (re)insurance sector can play a major role in sustainable flood resilience, in combination with advanced modelling and forward-looking analysis.