EQUECAT: Colorado Floods $2B in Economic Losses and Climbing

The floods in Colorado caused an estimated $2 billion in economic losses, in line with a report from catastrophe modeling firm EQUECAT.

The flooding was blamed for multiple fatalities, it’s estimated 1,500 homes were destroyed, and some 20,000 homes was damaged in more than 17 counties. Seven people have been reported dead.

Gov. John Hickenlooper on Friday signed an executive order for an additional $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 vp and product architect at EQECAT, said since the flood waters recede the loss tally will likely continue to rise.

“It’s easily going to exceed that,” he said.

However, a few of the financial losses may be borne by residents, since very little flood risk is insured. By some estimates as few as 1 percent of homeowners could be covered.

“From an insurance perspective it’s not an exceedingly big event,” Larsen said, in regards to the coverage of those homes that did have policies under the National Flood Protection.

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 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 might be home to roughly eight-in-10 of the state’s populous, account for approximately $200 billion GDP, which in ratio to the $2 billion in estimated losses could be considered “the same or possibly worse” than Sandy, based on Larsen.

What seems worse for Colorado victims is the lack of insurance.

“That’s the large mismatch,” he said. “Sandy had numerous insurance recovery.”

Colorado not most.

“It’s primarily uninsured,” he said. “That’s going to delay recovery. There’s a massive mismatch within 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 very often not retained after it becomes not 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 very good risk management product to policyholders, he added.

Despite the inability 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 all of the Rocky Mountain range, in line with the EQUECAT report.

Recent forest fires have reduced the flexibility of the terrain to retain water and urbanization has exacerbated conditions from the Colorado flooding, in keeping with the report.

EQUECAT looked at many of the following when examining estimated economic damages:

• In affected areas an estimated replacement cost of $200,000 per household can develop a normal of $300 million in total costs to mend the destroyed homes.
• Reviews of the impacts and costly repair of flooded houses can produce an estimate of $20,000 to restore all 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 a number of the residents of the damaged homes. There’s an expectation of 1 other $150 million in costs.

Bottom line, said Larsen, is people continue to live in high risk areas.

“We as a society prefer 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 just a few three-year memory of the last catastrophe.”