California is struggling with natural disasters. The state both suffers and benefits from seasonal rain patterns called atmospheric rivers, which transport water vapor from Hawaii to the continental US. Recent estimates suggest the 2023 atmospheric river caused over $10B of economic loss and provided the fuel for California’s wildfires.
It’s easy to get lost in big numbers across large areas, so I look for specific impacts to actual communities. In January of 2023, Santa Barbara County was hit with 16 inches of rain over 24 hours. Much of the county suffers from wildfires, and their scorched soil couldn’t absorb water, which led to devastating landslides. Properties were damaged, roads were blocked, and residents were forced to evacuate. The floodwaters and resulting debris forced the county to close Highway 101, which severely impacted businesses and commuters. The Santa Barbara Airport was forced to close, isolating the community and causing massive disruptions to commerce and supply chains. Emergency response teams were stretched incredibly thin; the county received over four hundred calls for rescue from residents trapped by rising water. Five required a helicopter.
The status quo is slow and insufficient
It’s not cheap to respond to atmospheric rivers. Over 80% of the losses listed above were uncovered by Santa Barbara’s insurance policies. Today, public entity insurance brokers are trapped in a world of property insurance, fixated on structures that have four walls and a roof. This fixation leaves governments and their constituents with insurance that covers only a fraction of their losses. I’m not pointing fingers; brokers and their clients are limited by the availability and accessibility of existing insurance products. And yet, traditional insurance doesn’t cover a major driver of loss – disaster response. As a result, public entities rely on two alternate sources to fund response efforts: federal aid and rainy day funds. Planada and Pajaro - in Merced and Monterey counties, respectively - were each allocated $20 million dollars from the state’s rainy day fund. Two years after the 2023 flood, $4 million of the $20 million has been distributed in Planada. Just over $1M has been distributed in Pajaro. Aid never arrives quickly enough and the public suffers. Many residents, particularly farmworkers, lost their homes and possessions in the ‘23 flood. The slow disbursement of funds forced them into debt to cover basic needs and repairs. The U.S. Department of Agriculture allocated $4 million in aid, but delays have prolonged infrastructure issues to the town sewage system, affecting sanitation and public health. The list goes on.
While cities wait for disaster funds, they have a few options: they can navigate byzantine administrative processes to transfer funds from one budgetary allocation to another, which takes time, effort, and coordination. They can also pursue short-term loans, which come with punishing interest rates that destroy budgets. When a city suffers catastrophic flooding, its tax revenue from residential and commercial properties, businesses, and tourism plummets. It’s a painful time to take on debt.
“Climate change is hurting those who have the least ability to recover. We’re trying to sound the alarm and help local governments shift their thinking about insurance to help the most vulnerable people.” - California Insurance Commissioner Ricardo Lara
This is a massive problem felt by every constituent and every industry. Risk managers, administrators, and governmental leaders are pulling their hair out. And the problem isn’t limited to Santa Barbara. In 2023, Sacramento incurred $4 million in disaster response costs. The 2024 atmospheric river overwhelmed San Diego’s stormwater system, which displaced over 1,200 households and caused $31 million dollars in damage.
Season after season, governments are left to manage financial uncertainty and navigate millions of dollars in damages, lost revenue, and recovery expenses. Property insurance is wildly insufficient, and so are rainy day funds. State and federal aid takes years to distribute. So what’s to be done?
Bridging the gap
I believe parametric insurance has a part to play. Floodbase has an insurance solution that enables public entities to receive quick payouts following catastrophic floods, regardless of where the flooding took place. If an atmospheric river produces record flooding within a city’s jurisdiction, the city receives a payment that they can use to cover any cost, including disaster response. This solution also meets common capital obligations for flood coverage at structures. This is a step towards resilience, and early customers are already sharing their experiences.
I have an urgent message for public entity insurance brokers: more indemnification is absolutely necessary. But a holistic flood insurance strategy requires bridging the gap between property loss and overall economic loss in the wake of increasingly frequent natural catastrophes.
If you’d like to learn more, get in touch with our partners at Amwins.
