An Army Corps of Engineers annual report, released in early February, gave 122 levees--across 27 states, Puerto Rico and the District of Columbia--unacceptable maintenance ratings.
Reasons for the negative rating can include any deficiency that prevents the levees from functioning as designed, such as movement of the floodwalls, a faulty culvert condition, erosion, tree growth or even animal burrows.
This list, mind you, only includes issues with upkeep. In 2008, the Corps will begin a risk assessment of all 2,000 levees in its inventory for design issues. After that process is complete in an estimated five years, the Corps could add more at-risk levees to the list.
For the time being, 122 poorly maintained levees are enough to make flood an even greater risk than it always has been.
Of particular note on this list of faulty levees are the 19 that are part of the Sacramento River Flood Control project, and others in the Central Valley of California, which is already prone to flooding as is, perhaps more so than the Lower Ninth Ward and other parts of New Orleans were before Katrina.
"People have been building in areas that will flood if those levees break," says Paul Budde, executive vice president, product development, at reinsurance intermediary Benfield Group.
But Budde stresses that the risk of a levee breach and flooding is not limited to just Sacramento. These levees are all over the country.
California has 37 levees that earned the unsatisfactory rating in this year's inspection. In New Mexico, the largest city of Albuquerque is home to one of the at-risk levees. Washington, D.C., contains three. Other good-sized cities with levees on the list include East Hartford, Conn.; Macon, Ga.; Roanoke, Va.; and Springfield, Mass.
The Corps passes along its ratings of all levees to the Federal Emergency Management Agency, which can then use the levee rankings to update its flood maps.
"They want to make sure everybody understands the risk," says Clive Goodwin, assistant vice president and manager of natural hazard perils at commercial property insurer FM Global.
Goodwin believes the latest ratings could help to change people's perception about flood risk outside the designated flood plains. They could change the nature of flood risk to some extent.
"But it doesn't get away from the fact that a majority of losses happen in the areas where we have an identified high-risk area on the flood map," he says, adding that many of the suspect levees are already "right in the middle of the flood map."
That's good, right? These levees are already in areas where people are prepared for flood.
Not exactly. Flood risk, even without considering creaky levees, is an overlooked risk. People that are already in "black areas" on the FEMA flood maps, the high-hazard areas, says Goodwin, tend to misunderstand their exposure. It's through no fault of FEMA, which does a commendable job at delineating which areas across the country have the highest level of flood risk, he says.
"People don't understand the likelihood of events." Goodwin says. "They don't understand the magnitude in terms of the impact that it would have on their business."
With likelihood, commercial property owners often can be as confused as residential homeowners when it comes to the definition of a "100-year" flood--so confused, in fact, that "everybody is trying to move away from that," says Goodwin. The common misconception about a 100-year flood is that it only happens once a century. The true way to think about it, however, is that such a flood has a 1-in-100 chance of occurring every year--a 1 percent annual probability.
"The point is," he explains, "if you're in an area that's identified as a flood hazard, it will flood. There's no doubt, at some point it will flood. It's not if, it's when."
Or look at it this way. According to data from Goodwin's employer, FM Global, commercial properties in a flood zone have five to seven times the likelihood of suffering a significant flood loss compared with their chances of suffering a loss from fire.
"People are busily looking up at their sprinklers worried about a fire loss, but the reality is you're far more likely to have a flood loss," he says.
With magnitude, business owners underestimate too, assuming that a flood will just soak their basement or ground floor and that's that. But again, FM Global's figures bear out that the average flood loss is far more significant--1.5 times the average fire loss.
In part, the reason is that companies tend to keep valuable things in these lower floors, such as utility and data storage equipment. Damage to those can cut the lights out on a business and have more far-reaching and costly consequences than a business might suspect.
The risk to commercial property is not limited to the 50 states. A recent study by modeler Risk Management Solutions Inc. found that a repeat of the infamous U.K. river floods of 1947 would cost today as much as $30.4 billion in insured property loss--nearly half commercial. Respondents in a survey by the Federation of European Risk Management Associations, reported in late March in wire reports, listed catastrophic flood as a top global risk.
These proverbial waters of gloom will recede and optimism can reign again if one considers another flood misconception cited by Goodwin. This point--floods are inevitable, but flood loss does not have to be. Companies cannot control when flood waters come, but they can control what's in the path of these waters.
"That's a critical piece," he says. "At the end of the day, the important thing is minimizing the impact to you and your business, which is what the water damage is, not where the water goes."
So if a facility sits downstream from one of those 122 levees that recently got demerits from the Corps, its risk manager best know, first, that her property could be at risk and that, chances are, it was in a flood zone and at risk to begin with. And, secondly, she ought to know where the water will go when it does rise. The goal--to redecorate the facility's basement and other submersible floors, removing utility components, machinery and records accordingly.
MATTHEW BRODSKY is associate editor of
Risk & Insurance®.
May 1, 2007
Copyright 2007© LRP Publications