Friday, May 11, 2007

Economic Impacts of Global Warming On Insurance

May 3: The House Select Committee on Energy Independence and Global Warming, Chaired by Representative Ed Markey (D-MA), held a hearing entitled, Economic Impacts of Global Warming: Part 1-Insurance. The Committee heard from insurance experts on how a riskier, warming would affect their business and the costs to consider. A recent Government Accountability Office (GAO) report notes that insurers paid more than $320 billion in claims on weather-related losses from 1980 to 2005. Scientists predict that an unstable climate due to global warming will cause more severe and unpredictable weather events.

In an opening statement Chairman Markey said, "Over the last 25 years, extreme weather caused 88 percent of the $320 billion in total insured property losses. Since almost everything that is insured -- from property, to crops, to human life and health -- is susceptible to severe weather, the insurance industry is one of the most sensitive indicators of the economic repercussions of global warming. From a financial perspective, the insurance industry is our canary in the climate coal mine." Witnesses testifying at the hearing included: the Director of Natural Resources and Environment, Government Accountability Office; the Washington State Insurance Commissioner; and the President of the Reinsurance Association of America.

GAO testified that weather-related events in the United States have caused tens of billions of dollars in damages annually over the past decade. A major portion of these losses is borne by private insurers and by two Federal insurance programs -- the Federal Emergency Management Agency’s National Flood Insurance Program (NFIP), which insures properties against flooding, and the Department of Agriculture’s Federal Crop Insurance Corporation (FCIC), which insures crops against drought or other weather disasters. GAO said, "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. Since 1980, NFIP’s exposure nearly quadrupled to nearly $1 trillion in 2005, and program expansion increased FCIC’s exposure 26-fold to $44 billion.

GAO recommended that the Secretaries of Agriculture and Homeland Security analyze the potential long-term fiscal implications of climate change for the FCIC and the NFIP, respectively, and report their findings to the Congress. Both agencies expressed agreement with the recommendation.

Access the hearing website for links to an opening statement from Chairman Markey and the witness testimony (click here). [*Climate]