It is November of 2009, and a nor’easter is lashing the East Coast of the United States.
Sailors who were ordered to take their ships out to sea in advance of the storm have left their vehicles parked in a lot on the water’s edge at Naval Station Norfolk. Other transient residents of the city of Norfolk, Virginia, including military, civilian contractors, and students at Old Dominion University, have left their vehicles parked at ground level, unaware of the pending danger. Soon, the downtown area is flooded, and those leaving work and school decide to drive through rising water or even into underpasses with water over the roof level of the average sedan.
This is an all-too-common occurrence for those of us who live in and handle automobile claims in Southeastern Virginia. Are these incidents about to become more and more frequent? As claims professionals, we need to be aware of what may indeed become a growing trend.
Hurricanes Isabel, Irene, and Sandy, along with multiple nor’easters over the years, have caused street flooding in Norfolk. I knew that the city’s topography and abundance of waterways left it vulnerable to rising water. But I did not know that there was more at work than just changing tides and relation to sea level.
I recently attended a lecture at Old Dominion University in Norfolk during its thirty-third annual Founder’s Day luncheon for the Insurance and Financial Services Center. The featured speaker was Skip Stiles, executive director of Wetlands Watch, an organization dedicated to the conservation and protection of wetlands throughout Virginia. Stiles has become a leading expert on sea level rise and its effect on coastal areas.
Studies by the United States federal government and the National Wildlife Federation have estimated that, over the next century, the Chesapeake Bay coastal community will be the most affected area on the U.S. East Coast by sea level rise, second only to the Louisiana coast. Sea level rise of one meter is expected in the next 100 years —and while three feet may not sound like much, it is estimated that Virginia will lose 50 percent to 80 percent of its tidal wetlands if that occurs.1
Some may debate the man-made effects on global climate change, but all must concede that sea levels are rising. The United Nations Intergovernmental Panel on Climate Change reported in September of 2013 that “the atmosphere has warmed, ice and snow have diminished, and sea level has risen.”2 And Peter Hoppe, who heads Geo Risks Research for Munich Re, has said, “The rise in sea level caused by climate change will further increase the risk of storm surge.”3
In the Hague neighborhood of downtown Norfolk, structures that were built on a dry creek bed ninety years ago now see water in the parking lot and up to the building level every time there is a tidal flood warning. Residents are warned to move their vehicles to higher ground, and the city offers free parking in parking decks. Underpasses have lights warning of high water levels.
These measures were not needed seventy-five years ago, or even twenty years ago. Now they are commonplace, but the warnings are often missed or not fully understood by newer residents—which are numerous, as Norfolk’s population is transient, with its massive military presence a big reason for the turnover.
So what is the impact on private insurance and claims volume? On the homeowner’s side, there is, of course, the National Flood Insurance Program. This government insurance shields private insurers from risk resulting from flood.
However, the climate change that is causing the sea level rise has fostered an intensification of tropical storms. Some companies have refused to write new business near the coastlines. The cost to insure these homes and businesses continues to rise. Storms like Katrina and Sandy have shown us how devastated coastal communities can be from storm surge alone.
Where private insurers see increased claims volume from floods is with automobiles. The National Insurance Crime Bureau (NICB) has put the number of vehicles damaged as a result of Sandy at 250,500.4 And the proliferation of electronic equipment in new cars has been particularly problematic when these cars are inundated by water.
To see just how problematic, using Certified Collateral Corporation (CCC) estimating software, I completed an estimate on a 2014 BMW 3 Series sedan. I selected electronic control modules, sensors, motors, and wiring that would typically need to be replaced if the interior were exposed to even a little bit of water. The estimate totaled over $15,500 in parts alone.
Of the over 210,000 vehicles damaged by Sandy’s wrath in New York and New Jersey, the majority were total losses, and the average actual cash value was significantly higher than averages found normally. Also factored into the equation was that saltwater and brackish water (a mix of salt and fresh) cause much quicker oxidation and corrosion to exposed parts. If sea water gets inside a vehicle, it almost always causes a total loss. So then, logic suggests that sea level rise will bring increased risk to coastal communities, cities, military installations, and even NASA facilities.
Stiles maintains that NASA’s Wallops Island site will be underwater in thirty to fifty years and that NASA expects the site to be unusable in the near future. And what of Cape Canaveral in Florida? At the current rate of sea level rise, the Canaveral Seashore (currently one meter above sea level) is projected to be underwater by this century’s end.5
I don’t foresee a time in the near future when companies will stop writing automobile policies near coastlines. So the chances that a vehicle will be inundated by rising water will increase, and the chances that it will be a total loss has increased because of the proliferation of sensitive electronics. This combination is a pending threat to the industry and something all claims operations need to be cognizant of going forward.
Many thanks to the Personal Lines Interest Group for its contributions to this article.
1. WetlandsWatch.org, “Sea Level Rise, Wetlands and Adaptation,” December 2015.
2. Intergovernmental Panel on Climate Change, Climate Change 2013: The Physical Science Basis (Switzerland: IPCC, October 2013), https://www.ipcc.ch/pdf/assessment-report/ar5/wg1/WGIAR5_SPM_brochure_en... (accessed December 21, 2015).
3. Eduardo Porter, “For Insurers, No Doubts on Climate Change,” The New York Times, May 14, 2013, www.nytimes.com/2013/05/15/business/insurers-stray-from-the-conservative... (accessed December 21, 2015).
4. Porter, “For Insurers, No Doubts on Climate Change.”
5. “Superstorm Sandy impacts,” Collision Week, February 25, 2013.
This article was featured in the Spring 2016 issue of Insights, the professional journal of the CPCU Society.