Inland flooding poses an extremely high risk to homes and businesses both on and off the floodplain. It can last for days or weeks, and even a few inches of water can cause extensive losses to buildings and their contents.
You can manage flood risk in a variety of ways. At the most basic level, insurers use property location to determine if the risk is located on a floodplain. More sophisticated risk management techniques use catastrophe modeling to develop underwriting rules based on the location and characteristics of the property. Any insurer with a portfolio of properties exposed to flood risk needs to manage that risk effectively.
There are other factors, known as secondary risk characteristics, that can significantly affect a building’s resistance to flood damage and have a major impact on loss potential. Insurers should account for those characteristics when seeking to understand and manage flood risk. In this article, we’ll examine some secondary risk characteristics and the effect they have on a property’s flood risk.
Underwriting teams can play a key role in capturing the property information insurers need to manage flood risk effectively. Underwriting is the logical time to collect the property-specific building characteristics needed to manage flood risk using catastrophe models, ideally as part of a property inspection so a trained professional can collect all relevant data points.
The primary determinants of a structure’s flood vulnerability are its location, occupancy type, construction, height, and year built (which determines the building regulations in effect at the time of construction). Regional variations in those characteristics account for differences in construction practices that arise from building regulations and environmental conditions, while seasonality leads to differences in drying time.
The type of foundation of a structure can significantly affect its flood vulnerability. Basements can greatly increase the susceptibility to flood damage, and water can easily damage cripple wall crawl spaces and cause them to buckle. The type of material used can also make a difference, with concrete generally being more flood-resistant than masonry.
Number of basement levels
Underground garages and basements are particularly vulnerable and can flood even if the ground floor isn’t susceptible. For residential single-family or multifamily homes, one basement level is the norm, but you’ll often find multiple basement levels in high-rise and other large commercial buildings or apartment complexes. While multiple basement levels increase a property’s predisposition to flooding, those buildings are typically better engineered and may therefore be equipped with better flood protection systems, which can serve to mitigate the increased risk.
Basements can be finished or unfinished. Finished basements are equipped with interior features, such as drywall, plaster, insulation, and flooring. They may also contain more valuable contents than unfinished basements, increasing their potential losses due to flood events.
The elevation of a property above the normal water level of the nearest body of water can significantly reduce flood damage and loss, particularly in low-lying areas along waterways prone to flooding.
Base flood elevation
The Federal Emergency Management Agency (FEMA) defines the Base Flood Elevation (BFE) as the “water surface elevation corresponding to a flood having a 1 percent probability of being equaled or exceeded in a given year.” That’s essentially the water elevation (in feet) expected for a 100-year flood. Any first floor built above the BFE will therefore significantly reduce flood damage and loss.
For all residential, commercial, and small industrial buildings, a first floor raised above the ground surface greatly reduces the building’s vulnerability to flood damage.
Custom flood protection
Assuming that they don’t fail and aren’t overtopped, levees, flood walls, and other custom flood defense systems can provide a property with protection up to their height above the ground surface. It’s important to check for the presence of such defenses when assessing the overall risk of a property under evaluation.
Service equipment protection
Mechanical, electrical, or plumbing service equipment in residential, commercial, or small industrial buildings is often located at or below ground level and is therefore more vulnerable to flood damage. Elevating the equipment or installing some type of flood-proofing can provide protection.
Floor of interest
Sometimes an insurance policy doesn’t cover the entire building because only a portion of it (which can include the basement) will be exposed to flood losses. The elevation of the floor in question clearly plays a critical role in risk assessment.
Vulnerability of contents
The contribution of building contents to a structure’s total damage from flood can be considerable. The vulnerability of contents to flooding depends on the flood depth. Different contents have different vulnerabilities depending on the inundation depth,1 the floor on which the contents are located, and the extent to which the contents are water-resistant or protected against flood damage.
1 Inundation is the total water level that occurs on normally dry ground as a result of a storm and is expressed in terms of height of water (in feet) above ground level.
Gather data now
Insurers can obtain the secondary risk characteristics for properties in a portfolio by surveying the exposures and carefully accounting for building characteristics at the point of underwriting. Capturing that additional information is important because it helps assess the underwriting potential of the property — and whether to insure or avoid the risk.
The inclusion of secondary risk characteristics when using catastrophe models to manage flood risk will produce significantly more accurate results. Insurers should collect the relevant property specific data as part of the routine data-capture process. That practice can help insurers derive maximum benefit from advanced probabilistic flood models and better refine the view of risk.