The floods in Colorado caused an estimated $2 billion in economic losses, according to a report from catastrophe modeling firm EQECAT.
The flooding has been blamed for multiple fatalities, it’s estimated 1,500 homes have been destroyed, and some 20,000 homes have been damaged in more than 17 counties. Seven people have been reported dead.
Gov. John Hickenlooper on Friday signed an executive order for another $20 million for flood-related efforts.
He also declared a disaster emergency due to the flooding for Clear Creek and Sedgwick counties, and authorized state agencies to suspend provisions of any regulatory statute for state business in coping with the emergency.
Based on the still-unfolding events, expect that $2 billion figure to rise.
Calling the $2 billion “a very conservative number,” Tom Larsen, senior vice president and product architect at EQECAT, said as the flood waters recede the loss tally will likely continue to rise.
“It’s easily going to exceed that,” he said.
However, most of the financial losses will be borne by residents, since very little flood risk is insured. By some estimates as few as 1 percent of homeowners will be covered.
“From an insurance perspective it’s not a very big event,” Larsen said, referring to the coverage of those homes that did have policies under the National Flood Insurance Plan.
Comparing the Colorado disaster with Superstorm Sandy Larsen said the widespread flooding and wind damages from Sandy yielded roughly a $50 billion economic hit, but it was over a much bigger denominator.
Sandy had an impact on the Easter Seaboard, which has roughly $4 trillion of the U.S. gross domestic product. The affected Colorado counties, which are home to roughly eight-in-10 of the state’s populous, account for roughly $200 billion GDP, which in ratio to the $2 billion in estimated losses could be considered “the same or possibly worse” than Sandy, according to Larsen.
What appears to be worse for Colorado victims is the lack of insurance.
“That’s the big mismatch,” he said. “Sandy had a lot of insurance recovery.”
Colorado not so much.
“It’s primarily uninsured,” he said. “That’s going to delay recovery. There’s a huge mismatch in the risk profiles in different parts of the country.”
Adding to the problem is that there is very little private flood insurance offered in Colorado, and NFIP is quite often not retained after it becomes no longer mandatory.
“Flood is a challenging insurance product,” Larsen said.
Because it’s federally backed NFIP distorts the market on pricing making it hard for private insurers to offer a good risk management product to policyholders, he added.
Despite the lack of insurance, the Rocky Mountains in Colorado are known for flash flood risk. The confluence of steep canyons concentrate rainwater run-off, while meteorological conditions conducive to heavy rainfall produce a measurable risk of flooding along the entire Rocky Mountain range, according to the EQECAT report.
Recent forest fires have reduced the ability of the terrain to retain water and urbanization has exacerbated conditions from the Colorado flooding, according to the report.
EQECAT looked at some of the following when examining estimated economic damages:
- In affected areas an estimated replacement cost of $200,000 per household can develop an average of $300 million in total costs to repair the destroyed homes.
- Reviews of the impacts and expensive repair of flooded houses can produce an estimate of $20,000 to restore each of the 17,500 flooded but not destroyed homes, or an additional $350 million in economic damages, some of which won’t be repaired.
- Residents of the destroyed houses will incur extraordinary living expenses while their homes are being repaired, as will many of the residents of the damaged homes. There’s an expectation of an additional $150 million in costs.
Bottom line, said Larsen, is people continue to live in high risk areas.
“We as a society like to live in floodplains and risky areas,” Larsen said, adding that the lessons learned from living in such areas are short-lived. “We collectively have about a three-year memory of the last catastrophe.”