Insurers Cite Threat Of Global Warming

The managers of the federal flood and crop insurance programs aren't doing enough to keep Congress informed of the potential risk global warming represents to the taxpayer, a key member of the Senate Homeland Security Committee charged last week.

Sen. Susan Collins, R-Maine, said she was “struck by the lack of urgency you are displaying in dealing with these issues.”

Sen. Collins, the committee's ranking minority member, was responding to testimony by the Government Accountability Office that global warming constitutes a “significant” financial risk to both government and private insurers, urging managers of federal insurance programs to reassess the potential risk to taxpayers and report to Congress as soon as possible.

“You have a very relaxed attitude toward a looming crisis,” Sen. Collins said in reaction to testimony at the hearing by Eldon Gould, administrator of the Risk Management Agency in the U.S. Department of Agriculture, and Michael Buckley, deputy assistant administrator for mitigation at the Federal Emergency Management Agency, a unit of the U.S. Department of Homeland Security.

In response to the criticism, Mr. Buckley said the NFIP is indeed concerned, and is reacting to the fact that the National Flood Insurance Program has had to borrow money to pay claims because of the 2004 and 2005 hurricanes. “We realize Hurricane Katrina is not an anomaly,” he said.

At the same time, Andrew Castaldi, senior vice president and head of catastrophic perils for Swiss Re in the United States, testified that while it remains “an open question” whether the harsh coastal storms of 2004 and 2005 are attributable to global warming, “it is quite clear that, if left unchecked, carbon dioxide emissions will alter the natural variations of climate change and will affect U.S. weather patterns, and some natural catastrophes.”

Therefore, he added, “preventative action…must be taken today.”

“If we wait until we have achieved absolute certainty, we run the risk of acting too late,” he added.

However, Mr. Castaldi emphasized that while some coastal insurers, officials and consumers are suggesting that “natural catastrophes are not insurable in the private market,” meaning a government backstop is required, “that is not Swiss Re's view.”

Indeed, he said that because the risks can be modeled by the private sector and are random in nature, “they are insurable.”

“The largest events can and have been absorbed by the industry,” he continued during the committee hearing on “Dangerous Exposure: The Impact of Global Warming on Private and Federal Insurance.”

While a government backstop for such risks “is inappropriate public policy” in Swiss Re's view, Mr. Castaldi added, there are steps the public sector can take to mitigate future damage, including better zoning and building codes.

The hearing was prompted by an April 6 United Nations report predicting drastic consequences from global warming unless greenhouse gas emissions are checked.

In opening the hearing, Sen. Joe Lieberman, D-Conn., said the report indicates that, “in sum, we're looking at a future of intensified floods, droughts, pestilence, fires and storms–all carrying dire and devastating economic consequences.”

Commenting on the hearing, Justin Roth, a senior director at the National Association of Mutual Insurance Companies, said that “whether or not global warming exists, we agree with Sen. Lieberman that the insurance industry and the National Flood Insurance Program are facing increased claims due to the growing number and intensity of catastrophic storms.”

He added that “we believe that Congress can take a lead on this issue by appropriating more money for mitigation, and encouraging states to adopt strong statewide building codes.”

Cliston Brown, director of federal public affairs at the Property Casualty Insurers Association of America, noted that “climate change is creating rapidly escalating risks for our economy, and this problem illustrates why we need to ensure the long-term integrity of the NFIP.”

“We commend the committee for requesting a GAO study, and holding a hearing on this important issue,” Mr. Brown said.