Ten years after Hurricane Sandy caused an estimated $19 billion in damage to New York City, the risk of catastrophic flooding has only grown. The National Oceanic and Atmospheric Administration said in February that the city should expect up to 15 days of flooding each year due to rising sea levels, up from just five two decades ago.
The sad reality of climate change means that extreme weather events are becoming more frequent and intense. For homeowners in the city, it also means dealing with increased insurance premiums at a time when the real estate sector is still trying to recover from the pandemic.
“When an insurer comes to you and says, ‘Sorry, we can’t do it this year,’ you can’t make the decision to just buy less insurance,” said Aron Sotnikoff, chief operating officer. risks at Time Equities. bisnow. “You have to find it somewhere. »
Flood insurance is not usually covered by standard insurance packages, but most lenders and mortgage providers still require it. The majority of commercial property owners use the Federal Emergency Management Agency’s National Flood Insurance Program for a portion of their property coverage.
But the first problem for most New York building owners is that the NFIP only covers up to $500,000 in damages.
“It doesn’t cover much at all,” said Laurie Schoeman, director of climate and sustainability and capital at nonprofit Enterprise Community Partners. “In fact, it will barely cover the cost of repairing your mechanical systems.”
Flood insurance is generally limited to flash floods, when nearby waterfronts swell and overflow into streets, but does not cover floods caused by excessive rainfall, experts said. bisnow. This could be a huge problem: NYC is also expected to receive more precipitation in addition to flash flooding of its seas and rivers, increasing the risk of flooding due to inadequate storm drainage.
It also does not cover flooding from sewer backup – the culprit of flooding in thousands of homes last year when Hurricane Ida hit NYC – forcing homeowners to purchase additional jumpers to cover those risks.
“It’s really the city’s responsibility to maintain the drainage patch,” said Brian Linneman, flood program manager for Lockton Cos. “There’s not much you can reasonably expect from a single building owner.”
The New York City Department of Environmental Protection is working to address issues that led to flooding during Hurricane Ida, communications director Ted Timbers said. bisnow in an email. However, insurance for commercial property owners is outside the agency’s purview, he said.
One initiative, highlighted by DEP Commissioner and Climate Officer Rohit Aggarwala in recent testimony before City Council, is to invest in green infrastructure such as rain gardens and ponds to capture stormwater, as well as to force private developers to use materials capable of retaining excess water. .
During his testimony, Aggarwala acknowledged that potential resilience measures will be costly and that New York is often responsible for funding its own infrastructure investments.
“Adapting to our new climate will take time, a lot of money, difficult compromises and potential controversy. We will have to let go of the things we love,” Aggarwala said, adding that he hopes to see funding for the bipartisan Infrastructure Act, the Cut Inflation Act and the potential Environmental Bonds Act. New York State.
The highway from Long Island to New York was closed due to flash flooding caused by landfall from post-tropical storm Ida.
For now, the increased risk means most building owners are using a patchwork of insurance policies to achieve the amount of coverage they need for their building, said Timothy Dodge, assistant vice president. research and information at Big I New York, a trade association representing independent insurance. agents and brokers.
While this isn’t a new arrangement for commercial properties in New York, rising prices are adding complications as homeowners try to find coverage.
“Insurance is getting a little harder to get and a little more expensive over the past five years due to erratic weather, more frequent and more intense storms,” Dodge said. “Everything south of Westchester County – meaning Westchester, the five boroughs and Long Island counties – are really areas you need to worry about.”
As a result, homeowners are playing a dangerous game to make sure they stay covered — signing deals with lower premiums that mean paying higher deductibles if something happens, Schoeman said.
“That’s a problem, because then you have to have a million dollars in reserves to cover a loss if there were to be an event,” Schoeman said. “If you don’t have a reserve, you can’t pay the deductible.”
Homeowners are considering making modifications to their buildings that they can use to get discounts on their insurance, Schoeman said. Mechanical equipment can be moved from basements to upper floors of the building, avoiding some of the mechanical and electrical damage that accompanies flooding. They can also add vents to flood-prone areas like basements, allowing trapped water to drain away.
But those measures are already a heavy hitter for some of the city’s smaller multi-family homeowners.
“To be honest, the vast majority of multifamily owners are just trying to keep the lights on,” Schoeman said. “We’re not in a place where we’re better prepared after Sandy than we were. [before].”
Some developers and investors, such as Time Equities, have oriented their building designs around sea level rise and flood threats. But even that doesn’t necessarily translate to insurance reductions, Sotnikoff said. bisnow.
The streets of Manhattan’s East Village after Hurricane Sandy in 2012.
While seeking coverage for 50 West, a luxury residential condominium building in Lower Manhattan, Time Equities received a quote for more than $3 million, Sotnikoff said. Since the NFIP only recognizes flood protection efforts for commercial developments, the geographic hazards of 50 West — just on the outskirts of Lower Manhattan, about 1,000 feet from the Hudson River — contributed to the high cost. of the cover.
“We’ve floodproofed the building at a foot above base flood elevation, all of the machinery, all of the electrical, is high up in the building,” Sotnikoff said. “So we went into the private flood insurance market, and were hoping to find a carrier or two who might be willing to take a closer look at the building and give us some credit for all the work that went into it. was done to make the building resilient from the start.
Time Equities managed to find $250,000 of coverage, Sotnikoff said, but last year their insurer told them they could only cover $20 million in coverage, compared to $51 million that West’s 50 had to find to appease its lenders.
“We had to find other carriers that would be willing to provide insurance layers above $20 million,” Sotnikoff said. “We were able to build two layers above that $20 million primary to get the amount we needed, but the price has gone up significantly. We paid, I can’t remember the exact numbers, but I’m going approximately 30% to 40% [more].”
These increases are early warning signs of an insurance market that sees a troubled future, Schoeman said.
“First of all, you see insurance companies increasing their insurance rates. When rates go up 20%, 30%, 40%, that sends a signal to the market, which is, “It’s a riskier trade,” Schoeman said. “And then what you start to see is that it just becomes untenable to continue doing business in that jurisdiction. So you start to see insurance companies pulling out.
Insurers aren’t exiting the New York market yet, Dodge said, but they are already fleeing some high-risk areas. Several insurers have already stopped offering coverage to homeowners in Louisiana and Florida, leaving thousands of homeowners without coverage.
Some insurers still operating in these markets are going bankrupt: in June of this year, four providers declared bankruptcy in Florida.
Time Equities’ difficulties could also portend difficulties for other developers focused on resilient buildings.
Lendlease, who is developing One Java Street in Brooklyn to feature a living shoreline that will soak up water and break waves — meaning less water from surges can enter the building — doesn’t know what future bills will look like. insurance for the project.
“We have very strong relationships with our insurance partners, but we imagine this is going to be an evolving conversation,” said Sara Neff, head of ESG at Lendlease.