U.S. Government Insurers Ill Prepared for Climate Perils

WASHINGTON, DC, April 20, 2007 (ENS) - The federal government flood and crop insurance programs have failed to address the increased risks likely to result from global warming, finds a new report prepared by the investigative branch of Congress, the Government Accountability Office, GAO.

The report,"Climate Change: Financial Risks to Federal and Private Insurers in Coming Decades are Potentially Significant," was commissioned by the chairs of the Senate Committee for Homeland Security and Governmental Affairs, Senators Joe Lieberman, a Connecticut Independent, and Republican Susan Collins of Maine, and released at a committee hearing Thursday.

"The rapidly mounting evidence of climate change depicts a threat that extends even beyond vital environmental and social concerns," said Senator Collins, the committee's Ranking Member. "Global warming also threatens to burden consumers and taxpayers with billions of dollars in added costs as insured losses from floods and storms cause increases in federal spending and insurance premiums."
Collins

Senator Susan Collins of Maine listens to the evidence at the Committee for Homeland Security and Governmental Affairs hearing Thursday. (Photo courtesy Office of the Senator)
"Weather-related events have cost the nation billions of dollars in damages over the past decade," the report states. These losses are borne by private insurers and by two federal insurance programs - the National Flood Insurance Program, which insures properties against flooding, and the Federal Crop Insurance Corporation, which insures crops against drought or other weather disasters.

Since 1980, National Flood Insurance Program’s exposure quadrupled, nearing $1 trillion in 2005, and program expansion increased Federal Crop Insurance Corporation’s exposure 26-fold to $44 billion.

Major private and federal insurers are both exposed to the effects of climate change over coming decades, but are responding differently, writes the report's lead author John Stephenson, director of the GAO's Natural Resources and Environment division.

Many large private insurers are incorporating climate change into their annual risk management practices, and some are addressing it strategically by assessing its potential long-term industry-wide impacts. "The two major federal insurance programs, however, have done little to develop comparable information," the report states.

"The private insurance industry, driven by the discipline of the marketplace, has been paying serious attention to increased risks presented by climate changes," said Collins. "But federal insurance programs, on the other hand, have done little to develop the kind of information needed to understand programs’ long-term exposure to climate change."

In arriving at these conclusions, GAO investigators reviewed key scientific assessments, analyzed insured loss data, and contacted private insurers, the National Flood Insurance Program, and the Federal Crop Insurance Corporation.

The key assessments the GAO reviewed generally found that rising temperatures are expected to increase the frequency and severity of damaging weather-related events, such as flooding or drought, although the timing and magnitude are as yet undetermined.

The global average surface temperature has increased by 0.74 degrees Celsius over the past 100 years and climate models predict additional, perhaps accelerating, increases in temperature, the report states, citing the Intergovernmental Panel on Climate Change among other scientific reports.

The GAO cites the conclusions of major scientific bodies that "human activities, including the combustion of fossil fuels, industrial and agriculture processes, landfills, and some land use changes, are significantly increasing the concentrations of greenhouse gases and, in turn, global temperatures."

Determining the precise nature and extent of the relationship between average global temperatures and weather-related events is an exceedingly challenging task, the GAO acknowledges in the report.

"Nonetheless, a key assessment of climate model projections indicates that an increase is likely in the frequency or severity of damaging extreme weather-related events."

"Two major federal programs which, as a consequence of both future climate change and substantial growth in exposure, may see their losses grow by many billions of dollars in the coming decades," according to the report.

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Floodwaters flow through the historic Black Rock Mill along Seneca Creek in Germantown, Maryland due to record rains across the Mid-Atlantic region. June 27, 2006. (Photo by Aaron Skolnik courtesy FEMA)
At the hearing Thursday, Senator Collins stressed the need to take "sensible steps in many areas to lead us to a more stable climate future." Since she was elected to the Senate in 1996, Collins has met with numerous climate researchers, and says she has seen the effects of climate change on snowfall, ice caps, and glaciers. She is a cosponsor of the Climate Stewardship and Innovation Act and will soon introduce legislation designed to reduce U.S. greenhouse gas emissions and slow climate change.

Conservationists agree with the report's conclusions and urge the government to address the issue immediately.

"We commend Senators Lieberman and Collins for exposing the inadequacies of federal insurance programs to protect taxpayers from catastrophic losses due to global warming," said David Tuft, campaign director of the Natural Resources Defense Council’s Climate Center.

"Not only has our federal government thus far failed to take action to prevent the worst consequences of unchecked global warming pollution, but it has failed fundamentally to take reasonable precautions against global warming-induced storms and drought, and the high costs that will be borne by families, businesses and ultimately, taxpayers,” Tuft said.

From 1980 to 2005, private and federal insurers paid a total of more than $320 billion in claims on weather-related losses. the GAO reports.

turkeys

Nearly 750,000 turkeys were lost to flooding in Duplin County, North Carolina as well as 100,000 hogs. This owner, Alan Reynor, lost at least $85,000 plus cleanup costs. He also lost 2,500 hogs and his corn crop. September 1999. (Photo by Dave Gatley courtesy FEMA)
Claims varied from year to year due to the effects of catastrophic weather events such as hurricanes and droughts but have increased over this period of time.

The growth in population in hazard-prone areas and resulting real estate development have generally increased liabilities for insurers, and have helped to explain the increase in losses.

Due to these and other factors, federal insurers’ exposure has grown substantially and is expected to increase as the climate warms, the GAO finds.

The GAO report acknowledges that the federal insurance programs are not profit-oriented, like private insurers. "Nonetheless," it concludes, "a strategic analysis of the potential implications of climate change for the major federal insurance programs would help the Congress manage an emerging high-risk area with significant implications for the nation’s growing fiscal imbalance."

Congress established the Federal Crop Insurance Corporation in 1938 to temper the economic impact of the Great Depression and the weather effects of the dust bowl. In 1980, the Congress expanded the program to provide an alternative to disaster assistance for farmers that suffer financial losses when crops are damaged by droughts, floods, or other natural disasters. Farmers’ participation is voluntary, but the federal government encourages it by subsidizing their insurance premiums.

The GAO is recommending that the secretaries of agriculture and homeland security analyze the potential long-term fiscal implications of climate change for the Federal Crop Insurance Corporation and the National Flood Insurance Program, respectively, and report their findings to the Congress.

In commenting on a draft of this report, the two agencies agreed with the recommendation.

damage

This mobile home in the coastal community of Johnson Bayou, Louisiana was destroyed by the tidal surge from Hurricane Rita. Someone painted on the siding, "Gone With the Wind." September 2005. (Photo by Marvin Nauman courtesy FEMA)
Commenting for the Department of Commerce, Undersecretary for Oceans and Atmosphere Conrad Lautenbacher, went a step further than the report, warning that coastal communities are especially vulnerable to the risks of climate change related weather events.

"The report should examine coastal development impacts more rigorously," Lautenbacher wrote.

He cites research showing that, "coastal development has increased the vulnerability to winter storm surge, wind damage and hurricanes. These vulnerabilities, due to high risk coastal development, will only be amplified by climate change related increases in the frequency or severity of high impact extreme weather related events."

"We can no longer afford to let political considerations blind us to the realities of rising global temperatures,” said the NRDC's Tuft.

"As we saw with the response to Hurricane Katrina, our government is woefully ill-prepared to protect its citizens against catastrophic losses," said Tuft. "Now this report has blown the whistle on how ill-prepared we are as a nation for further destruction. The key is that there is still time to reduce the threat of global warming, and avoid the worst consequences.”