Catastrophic flooding is a major problem in the US, where it kills more people every year than tornadoes, hurricanes or lightning combined.

Executive Summary

Snow melt flooding is an imminent threat in the U.S., but there are steps insurance professionals can take to mitigate their clients’ risk, says Richard Coyle, U.S. Commercial Director at FloodFlash.

But these floods are not confined to the winter or summer months during the hurricane season. Spring also brings the risk of extreme snow melts that can affect not only the states experiencing hard winters but warmer regions, too.

The question for businesses is whether they have the right property and business interruption coverages for this risk. Relying on the U.S. government’s National Flood Insurance Program (NFIP) may be inadequate and remediation may be slow. Indeed, the protection gap for flood risk is very wide. (Editor’s Note: According to the NFIP, the program’s homeowners and commercial policies cover “direct physical loss” from flood, including “unusual and rapid accumulation or runoff of surface waters from any source.” Other limitations of NFIP coverage are described below.)

Snow melt, unlike rainfall flooding, can be stored for months after falling, meaning extreme winters can lead to extreme spring snow melts. The frozen water can store in huge quantities—the Sierra snowpack last year could have flooded the entire state of California in five inches of water—which is unleashed when the weather gets warmed. Flooding occurs if there is more water than the ground can take or if rivers overflow.

California once again faces a very real threat of flooding this year after a blizzard dumped more than 80 inches of snow on the mountains of northern and central California.

In recent years, snow melt floods have also threatened Texas, Louisiana and Arkansas. The Mississippi and Missouri rivers are prone to flooding, with the former coursing through 10 states, from snow-bound Minnesota, Iowa, Illinois, Missouri and Wisconsin down to Kentucky, Tennessee, Arkansas and Louisiana.

Ice jams contribute to these floods as the melting snow runs into ice on rivers and creeks, lifting it and breaking so large chunks jam against bridges and other structures to form a dam. If the water suddenly breaks through, serious flash flooding happens downstream.

In the U.S., floods have cost taxpayers more than $850 billion since 2000, accounting for two-thirds of the cost of all natural disasters, according to the U.S. non-profit organization Flood Defenders. The group adds that America has experienced an urban flooding event every two to three days for the past 25 years.

According to the U.S. National Weather Service, in 2017, eight of the most significant floods of the 20th century were related to snow melt.

Flood Insurance Misconceptions

Despite the frequency and recurrence of these catastrophic events, flood is the No. 1 uninsured peril. A recent Chubb survey found that 85 percent of companies mistakenly believe their property insurance covers some, all or most types of flooding. Further, more than half of brokers (56 percent) said organizations they support do not purchase flood insurance because they assume it is already included in their commercial property policy, the Chubb study continued.

One possible contributing factor for this misconception is that victims of snow melt flood often do not live in areas where the snow has fallen. Often, when the snow melts, it leads to flooding many miles downstream.

Climate Extremes

Climate change is intensifying extremes, leading to what is described as “weather whiplash”—abrupt transitions from one weather event to another, such as from a frigid cold spell to anomalous warmth. These weather whiplash transitions are making flooding more difficult to predict as models and forecasts rely on historical data.

The severity of “snowmageddons” is only expected to increase. According to the National Oceanic and Atmospheric Administration(NOAA), the frequency of extreme snowstorms in the eastern two-thirds of the U.S. doubled in the latter half of the 20th century compared to the first.

Severe flooding resulting from snow melt is clearly a major issue for the insurance industry in the U.S. and a concern for businesses seeking adequate protection.

Related article: Here to Stay: Why ‘Weather Whiplash’ Is a Growing Concern for Insurers

NFIP, managed by FEMA, offers flood insurance to homeowners and businesses in participating communities and those in the NFIP-designated floodplains. However, these policies do not cover business interruption and there are caps on claims. The maximum for residential structures is $250,000 in building coverage and $100,000 in contents coverage. The maximum for businesses is $500,000in building coverage and $500,000 in contents coverage, which means that many businesses face a severe insurance coverage shortfall.

Another challenge for businesses seeking protection against this flooding is that there is a shortage of insurance capacity due to the fact that growing numbers of private carriers have withdrawn from insuring this hard-to-place peril.

While severe flooding resulting from snow melt is undoubtedly a growing problem, there are practical steps businesses can take to secure protection.

The first thing that businesses concerned about their vulnerability to flood should do is to talk to their insurance broker. Brokers can advise businesses on their risk of flood, the level of protection they should buy, and also what preventative measures an organization might take to mitigate the risk.

Affordable flood coverages can be found in various markets that are stepping up to help fill the flood insurance protection gap—via the alternative risk transfer market with parametric insurance policies, the excess and surplus lines market, and sometimes even in the traditional market. Brokers must find what’s available to protect businesses from this risk.

For risk managers, it is advisable to create a flood plan and have resiliency measures in place in readiness for spring flooding. That might be as simple as a flood emergency plan but can include physical resilience measures including property-level flood defenses, raising important stock or machinery, or changing the interior of a business to facilitate faster cleanup.

Lobbying the government is always worthwhile, as flooding is part of the national political conversation. However, this rarely leads to short-term solutions.

If the NFIP is not available or scarcity of cover is an issue, brokers can advise businesses on how to secure alternative protection in the private markets.

Protection from flooding will continue to be a major challenge for businesses across the U.S., but the good news is that there are insurance solutions out there that can help.

New forms of flood insurance are emerging to protect U.S. businesses, not least parametric insurance, which is often available when traditional insurers refuse to quote or is unaffordable.