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Black Swan

The Day the Dike Breaks

A Cat 5 hurricane strike of Lake Okeechobee would inundate much of South Florida.
By: | August 1, 2013 • 7 min read

Hurricane Otto, a Category 5 hurricane, makes landfall at 3 p.m. ET on Tuesday, Sept. 12, 2014, just north of Fort Lauderdale. The storm travels northwestward across the state, maintaining Category 4 strength as it touches the southwest reaches of Lake Okeechobee, the 10th largest lake in the United States and the largest lake in the South.

The driving rains cause the water levels on the lake to rise, which creates a breach in the lake’s protective barrier, the Herbert Hoover Dike, in the vicinity of Clewiston. Tornados spawned by the hurricane also touch down on the dike, causing two more breaches, near the towns of Pahokee and Belle Glade.Hurricane

The lake, at 730 square miles and an average depth of only 10 feet, begins to flood the surrounding communities.

Eventually, much of South Florida will be inundated.

U.S. highways 441 and 98, and state roads 715 and 80 are destroyed by the slow-moving water.

Geographically, there is nothing to stop the wall of water as it spreads out from Lake Okeechobee toward the Atlantic Ocean. It will be weeks before the flood waters recede.

Evacuations began in heavily populated Broward, Miami-Dade and Palm Beach counties when the hurricane’s landfall became a certainty.

But there wasn’t much time.

Once the dike is breached, the more than 640,000 evacuees in Broward have less than 14 hours to move. Miami-Dade’s more than 936,000 evacuees have less than 13 hours to get out. In Palm Beach County, the window is less than 16 hours and more than 448,000 people need to leave.

The number of evacuees in the 10 low-lying Florida counties south of the lake totals nearly 2.9 million people. And that doesn’t count the handful of counties to the North and East that are also affected.

But whether the residents will be able to evacuate is in doubt. In Miami-Dade County, the inundation puts 212 miles of evacuation routes under 2 feet or more of water. In Palm Beach County, 180 miles of flooded roadways could trap residents attending to flee.

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Fatalities number close to 670. The property damage from the flooding and the windstorm that caused it run into the hundreds of billions of dollars.

The flood will have a devastating impact on businesses, families and Florida’s famous Everglades, which would suffer massive environmental damage.

The lake sediment contains decades worth of chemical runoff from local farms. Much of that sediment will contain toxic chemicals from the days when farmers weren’t as careful about what they put into the ground.

Flood cleanup costs will be amplified by debris, amounting to tens of millions of cubic yards, that will accumulate in heavily populated Broward, Miami-Dade and Palm Beach counties. According to a report by the Florida Division of Emergency Management, an Okeechobee dike breach scenario acompanied by a Cat 5 hurricane would produce 75.8 million cubic yards of debris. The U.S. Army Corps of Engineers estimates that Hurricane Andrew in 1992 produced 15 million cubic yards of debris and Hurricane Katrina in 2005 produced 118 million cubic yards of debris.

In that 10-county area, 62 percent of commercial properties suffer minor or major damage and 22 percent of commercial properties are destroyed.

This in an area where the pre-storm business-related structure values are some $62 billion.

Business interruption losses for that region are at some $53.5 billion.

It’s also not a good time for pet lovers. There are 3.8 million of them in the affected area and there won’t be enough time to take all of them to safety.

Who Saw This One Coming?

To the question, “Who saw this one coming?” the answer is, nearly everyone who was paying any attention.

The above situation has already been envisioned by the Florida Division of Emergency Management, which published just such a scenario for emergency planning purposes in May of 2008.

Other agencies in Florida are also on the case.

A study commissioned in 2006 by the South Florida Water Management District concluded that the Herbert Hoover Dike, which holds back the lake water, poses a “grave and imminent” danger of collapse.

The problem, according to an analysis of the situation by Lloyd’s of London, is that the dike is performing a task for which it was never intended. The dike is composed of earth next to Lake Okeechobee that was merely shoveled up into walls as high as 30 feet.

The decision was made in the 1970s to use the lake as a drinking water reservoir. This called for the maintenance of much higher water levels than the dike was ever intended to hold.

According to Lloyd’s, the Herbert Hoover Dike is being asked to function as a reservoir dam, when from a technical perspective, it isn’t a dam.

“The Herbert Hoover Dike was built as a levee to protect the local area from flooding,” Lloyd’s researchers wrote in a report about the dike’s weaknesses.

“It is made entirely from earth dredged up from around the lake and assembled into a huge mound,” the Lloyd’s report stated.

The engineering requirements to classify an impoundment as a dam are much more stringent than those for a dike, the report added.

The U.S. Army Corps of Engineers is maintaining a water level in the lake of between 13 feet and 15 feet above sea level. Should a Cat 5 or Cat 4 hit the lake, estimates are that the water level in Okeechobee would rise to 20 feet above sea level.

Those who are studying the issue closely say that there is no way the aged, decrepit structure would hold if that happens. The Corps, which in published statements pushes aside concerns about worst-case scenarios at Okeechobee, is currently pouring hundreds of millions of dollars into dike reinforcement efforts.

Of all U.S. flood risks, the Hurricane Research Center at Florida International University ranks Lake Okeechobee second behind only New Orleans in terms of vulnerability.

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And hurricanes have hit Lake Okeechobee and caused breaches to the dike before. The 1926 Miami hurricane made landfall as a Category 4 and the high water levels in the lake breached a levee, leading to the deaths of 386 people.

Just two years later, the first Category 5 hurricane in the history of the Atlantic basin pushed even more destruction onto the unlucky residents in the vicinity of the lake. That storm caused a breach in a small dike at the south end of the lake and the resulting flood is believed to have led to the deaths of more than 3,000 people.

According to Lloyd’s, the only storm that killed more people in this country was the infamous Galveston Hurricane of 1900, the death toll from which is estimated at some 8,000. Hurricane Katrina is believed to have killed 1,833 people in 2005.

According to a 2006 report commissioned by the International Hurricane Research Center, there are similarities between what happened when the levees failed during Hurricane Katrina in New Orleans and the potential failure of the Herbert Hoover Dike.

The stability failure of foundation soils underneath the earthen dike and levees would be the culprit.

An Enormous Recovery Effort

Cleanup costs for the Everglades could range as high as $100 million. The geography and topography of the area would make this already catastrophic event even worse because water already tends to move slowly in the adjacent canals and through the marshy Everglades.

That means floodwaters could take several weeks to recede (much like they did after the 1928 hurricane). That would impede emergency crews, residents and claims adjusters.

Robert P. Hartwig, president of the Insurance Information Institute, said that the many home and business owners would suffer uncovered losses, since the majority of losses from flooding, especially to residential structures, would not be covered by standard homeowners’ insurance or business property insurance policies.

Homes would be covered by the National Flood Insurance Program — although many people in the area don’t opt for it.

“While many homeowners have flood coverage in Florida, many do not, even in known flood zones surrounding the Lake Okeechobee area,” said Hartwig.

While the insurance industry at large may be positioned to cover the storm, one company would be in serious jeopardy — Citizens Property Insurance Corp., a state-run, not-for-profit insurance company. It’s the largest property insurer in Florida.

If a hurricane caused Lake Okeechobee to flood, Citizens — and its claimants — would be in very deep trouble.

“Residual markets are supposed to be markets of last resort,” said Julie Rochman, the president of Institute for Business and Home Safety, which is based in Tampa, Fla.

IBHS is a national nonprofit association funded by the insurance industry. It works to reduce the social and economic effects of natural disasters and other property loss events by conducting research and advocating improved construction, maintenance and preparation practices.

If a large storm hit, “they definitely won’t have enough money to pay the claims,” she said.

If Citizens or some of the smaller insurers are taken out by a Lake Okeechobee flood, then we can expect resentment from a Florida populace that already mistrusts the insurance industry.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]