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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

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]