The Aftermath of Hurricane Sandy
Authored by: Matt Leatherwood, Senior Reviewer and Amanda Cooper, Environmental Scientist
Roughly five years ago, the northeastern region of the United States experienced Hurricane Sandy, the second-costliest hurricane in U.S. history. Hurricane Sandy resulted in approximately 84% of all public assistance funding for New Jersey over the past decade. The storm brought record-setting storm surges, flooding, high winds, and overall destruction to the area. It is estimated that more than 70 billion dollars in damages, claims, repairs, and restoration resulted from the storm. Additionally, a significant decrease in productivity and profitability occurred for thousands of businesses in the region, including the New York Stock Exchange which closed for two consecutive days because of weather for the first time since 1888.
The physical destruction caused by Hurricane Sandy was only the initial impact. Flood Insurance Rate Maps (FIRMs), which are maps created by the Federal Emergency Management Agency (FEMA) for floodplain management, provide details regarding the risk of flooding in various areas. Local municipalities use FIRMs to manage floodplains and develop sound building ordinances. Mortgage lenders rely on FIRMs to help determine a property’s flood risk and decide whether flood insurance is required for loan considerations. Insurance professionals also use FIRMS to facilitate the rating process that determines a property’s flood insurance premium. A comparison of FIRMs before Hurricane Sandy to maps illustrating the actual flooded areas post Hurricane Sandy, revealed flooding was more widespread than initially expected, specifically within the urban coastal areas of northern New Jersey and the New York Metropolitan area. As a result, FEMA continues to conduct comprehensive reviews of FIRMs in an effort to update the flood maps to reflect potential impacts that are more representative of what may actually occur in those areas during significant storm events. Consequently, this has resulted in changes to flood zone classifications, which have resulted in changes to insurance requirements, coverage, and premiums.
Flood insurance is mandatory for properties located within flood zones A & V. V zones also require buildings to be elevated above the base flood elevation (BFE). The difference between A & V flood zones is zone A areas represent the 100-year floodplain subject to waves less than 3-feet, while zone V areas represent 100-year floodplains subject to breaking waves of at least 3-feet. Flood zones B, C, or X, which are moderate to low risk flood areas, typically do not require flood insurance; however, it is still highly recommended. After Hurricane Sandy, FIRMs for many areas in the northeastern U.S. were reassessed with flood zones being recategorized. For example, Hudson County, New Jersey saw a 76% reduction of V zones. Additionally, an increase in zone X areas (initially V & A zones) have been observed for the northeastern region of the U.S. This may be viewed as a lone positive resulting from Hurricane Sandy; however, what about those properties that remain and/or have been recategorized in A & V zones? In 2014, the mean annual premium for flood insurance (for residential properties) in V zones was eight times more than the insurance premiums for B, C or X zones. Can you imagine the difference in cost for insurance premiums associated with commercial and/or industrial properties?
A storm of this magnitude has not occurred within the northeastern region U.S. since the “Long Island Express” (a.k.a. “Great New England”) Hurricane of 1938. The National Flood Insurance Program began providing flood insurance in 1968 & FEMA was initially established in 1979. Think about it, you have owned and operated a business in northern New Jersey since 1950. The buildings you utilize for your business predate the turn of the 20th century. For the first 20-30 years, obtaining flood insurance was most likely an afterthought. After the establishment of FEMA in 1979, and the subsequent issuance of FIRMs, purchasing of flood insurance for your business became more of a good business practice, not to mention it was most likely affordable. You continue to operate your business and are thriving to the point you are considering retirement. Suddenly, you wake up the morning after Hurricane Sandy and all your hard work is lost. Your entire business has flooded, ruining everything from basic office supplies to century old equipment. Your production comes to a screeching halt, and since your insurance coverage was predicated on FIRMs produced prior to Hurricane Sandy, you are now battling with the insurance company regarding the claim you placed in order to receive the necessary funds to restore your business. After relentless struggle and sacrifice you finally have your business back up and running, though your production is half of what is was before Hurricane Sandy. You now want to purchase flood insurance that provides adequate coverage. The FIRM for your area is reviewed and shows you are now located in a V zone, and you are now required to elevate your century old buildings above the BFE. Is that even possible? Imagine the cost and timeframe it would take to elevate buildings that have existed for 100 years or more. If you don’t, will you even be able to obtain flood insurance? What about your equipment? Should you elevate that as well? Do the dynamics of your business operation coincide with these elevation changes? Will you be able to absorb the cost of elevating the buildings, while also paying high insurance premiums? These are only a few questions that business owners within the northeastern U.S. struggle to answer on a daily basis as a result of Hurricane Sandy. What would you do?
Article originally printed in the EBA Summer Journal, June 2017