This Tiny California Town Is Flooded, Broke — and Reimagining Climate Insurance

On a typical day, Iva Walton, a bar owner and the new mayor of the nearly forgotten city of Isleton, feels like she is trying to save the world.

“Even though the present isn’t great right now, I have faith that our city is going to survive,” Walton said.

Deep in the Sacramento-San Joaquin Delta’s sprawling web of rivers and wetlands, deserted storefronts line Isleton’s Main Street. Walton’s business, Mei Wah Beer Room, presents a stark contrast with its fresh red and green paint.

Walton sat across a table from Vice Mayor David Kent at her bar on a Friday morning in January, drinking coffee. They mulled over how to preserve free-spirited Isleton — known for its crawdad and Spam festivals — and the troubles the historic city faces, some of which stem from the nearby Sacramento and San Joaquin rivers.

Isleton has a high risk of flooding but few resources, with a fifth of the city’s roughly 800 residents living in poverty. After rainstorms damaged its wastewater treatment facility, Isleton narrowly avoided bankruptcy this year. Walton consulted lawyers, accountants and flood insurance experts to bail it out.

“We’re in lightning mode,” Walton said. “There’s been a tendency for things to take a while to come to fruition here — you might call that ‘Delta time.’ But now, the faster, the better, so we can start to build up our city again.”

As climate change drives up flooding risk, the safest move for Isleton residents might be to abandon their small city — but short of that drastic option, insurance could provide a safety net. Now, with help from researchers, the state has funded its first community flood program, providing one private insurance policy for all Isleton residents at no cost.

Isleton is piloting community-based insurance for California, which desperately needs alternatives. Wildfires supercharged by climate change have cratered the home insurance market — and many Californians don’t buy flood insurance at all, even as severe storms batter the state and its aging levees.

Isleton hoped to fund the program independently after the pilot ends in 2027 by establishing a parcel tax, but many residents seem unsupportive of paying it. Despite the uncertain future, Isleton’s new leadership said they plan to lock in the insurance policy this month.

“The idea of insurance for the city of Isleton is hugely important and our number-one priority,” Kent said.

Twenty-six miles of underperforming levees encircle Isleton, which sits on one of the Delta’s many islands. The city ranges from around 6 feet below to 6 feet above sea level. The region is accustomed to flooding, but the June 21, 1972, flood was the most infamous in Isleton.

Isleton resident Pam Bulahan was 9 years old at the time. Her family received word before dawn of a levee breach. They borrowed a flatbed truck and scrambled to load up their nice furniture.

“I’m watching the water creep across the road,” remembered Bulahan, who today sits on the City Council with Walton and supports the insurance pilot. “It was the eeriest thing I ever saw. I figured the houses were going down, and they did.”

By sunrise, up to 5 feet of floodwater soaked her property. Around 200 buildings remained flooded for months, forcing the entire community to evacuate. It took Bulahan’s family a couple of years and a loan to repair their house, where she still lives today.

Most recently, in 2023, excessive rainfall cracked sewer pipes and overtopped Isleton’s wastewater treatment ponds, spilling sewage into the neighboring rivers — major sources of drinking water for the Bay Area and across the state.

In response to disasters like this, FEMA can reimburse cities for public infrastructure damage. But as Isleton awaited FEMA’s relief, Walton said the city took out a bridge loan to assist with the repairs — and then struggled to make payments. Added to a long history of financial mismanagement, the city this year had to lay off 12 of its 16 staff members to avoid bankruptcy.

Isleton’s challenges are not going away. With climate change, models predict annual flood damages from atmospheric rivers in the western U.S. could increase from $1 billion up to $3 billion by the end of this century.

Together, Walton, Kent and Bulahan form the board of Isleton’s Geologic Hazard Abatement District, the entity tasked with purchasing the new community-wide insurance policy. With the help of the engineering firm ENGEO, the district plans to finalize the policy in May.

At the district’s planning meeting in January, Walton clunked her water bottle on the table: “Call to order.”

The group was joined by Kathy Schaefer, an insurance advisor who left her longtime job as a FEMA engineer to pursue her civil and environmental engineering PhD from UC Davis. She took an interest in Isleton’s high flood risk. In her December dissertation, Schaefer outlined a program she argued offers more affordable and effective private insurance for Isleton than FEMA’s, and then successfully lobbied the state to fund that program.

“I became convinced that FEMA was fundamentally broken,” Schaefer explained. “I went back to school to find out exactly what the problem was and how we could solve it.”

Schaefer considers FEMA too costly and slow, leading many people to avoid flood insurance altogether. FEMA not only provides flood disaster funds for public infrastructure but, unlike the separate and privatized home insurance market, also sells most individual flood insurance policies. Although FEMA’s National Flood Insurance Program is widely available, it only covers around 2% of California properties.

Because Isleton falls into its high-risk flood zone, FEMA mandates that most homeowners with a mortgage buy flood insurance. But Schaefer found that less than a quarter of the some 500 Isleton households comply.

Schaefer fought hard to bring dollars to Isleton, so the entire community could have insurance.

Last fall, the California Department of Water Resources dedicated $200,000 for Isleton’s $2.5 million insurance policy through insurer FloodFlash and with underwriting from Munich Re.

Since Schaefer wanted this policy to be fast and flexible, she chose an innovative insurance structure dubbed “parametric.” Floodwaters trigger an immediate payout with this plan. By contrast, a more traditional “indemnity” insurance requires a lengthy claims adjustment process to determine payments based on damages.

In other words, if sensors on Isleton’s wastewater pump detect water rising above a certain level, the city automatically receives its $2.5 million.

The new geological district still has to decide how to distribute this money. One possibility is for $5,000 to go to each homeowner to cover temporary living expenses, cleaning and repairs. The district is also looking into options to include renters and for excess funds to go toward the city’s infrastructure. The dollars won’t necessarily make anyone whole, but will provide immediate aid.

FEMA won’t be obsolete in Isleton, however. Schaefer anticipates that if homeowners know the first $5,000 — and maybe one day $10,000 — is covered, they could actually afford traditional flood insurance by raising their deductibles.

That would lower their total insurance costs to as low as $800 annually, Schaefer said.

Currently, residents pay an estimated $1,100 per year — a significant cost, given the median household income in Isleton is about $60,000. By contrast, the statewide median household income is $96,000.

At first, Schaefer hoped Isleton property owners would greenlight a parcel tax to fund the parametric policy in the long term, but a recent survey revealed a lack of support in the community. A contractor stopped after interviewing just three residents, since they all voiced similar, strong doubts — such as not wanting to prioritize flood insurance in the first place.

Longtime property owner Jean Yokotobi helped with the pilot early on but became disillusioned. She did not feel confident in Isleton’s ability to navigate an effective program, and she doubts her neighbors can afford it.

“I can say now [a tax] is not going to pass,” Yokotobi said. “This is a severely depressed, disadvantaged community.”

An alternative to a tax, Schaefer said, could be to obtain additional grant money.

In California, many home insurers have either left entirely, stopped offering new policies or raised premiums. While home and flood insurance are distinct, similar issues around affordability and the climate crisis beg for new solutions. A range of parametric products for different disasters, including wildfires, are making inroads in California and globally. In New York City, the country’s first community parametric flood insurance program launched in 2023.

The California Department of Insurance helped spearhead the Isleton pilot. “We need to help our communities be more resilient to climate change,” Commissioner Ricardo Lara said in a press release. “We need to think creatively about how new insurance pilots like this Delta community project can be tested and scaled to help our most vulnerable communities.”

The “transparency and cleanliness” of parametric policies also appeals to insurers, according to Alex Kaplan, an executive vice president with the insurance broker Amwins.

Parametric insurance streamlines the claim process and caps liability for insurers, since the payouts are predetermined — an appealing option in the face of heightened natural disasters.

Tom Corringham, a climate economist from Scripps Institution of Oceanography, said he is rooting for Isleton, though infrastructure improvements and insurance can only go so far.“

We’ve spent a lot of money helping people rebuild after a disaster and, in some cases, it may be better to actually move people to a safer location,” he said. “Underneath all of this is the changing climate, which is intensifying our storms, making us more susceptible to floods.”

Walton and Kent lingered after the January insurance meeting, discussing the responsibility to balance Isleton’s books, especially so the insurance plans could continue. In their long view, addressing the city’s flood risk helps ensure its prosperity.

They envision a flourishing Main Street with hotels, shops and restaurants drawing more tourists to enjoy Isleton’s undeniable charm.

“This tiny spot on the map has so much impact, and that’s why we have to take care of it,” Walton said. “That’s why I’m doing this.”