[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
ECONOMIC IMPACTS OF GLOBAL WARMING:
PART I--INSURANCE
=======================================================================
HEARING
BEFORE THE
SELECT COMMITTEE ON
ENERGY INDEPENDENCE
AND GLOBAL WARMING
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MAY 3, 2007
__________
Serial No. 110-3
Printed for the use of the Select Committee on
Energy Independence and Global Warming
globalwarming.house.gov
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SELECT COMMITTEE ON ENERGY INDEPENDENCE
AND GLOBAL WARMING
EDWARD J. MARKEY, Massachusetts, Chairman
EARL BLUMENAUER, Oregon F. JAMES SENSENBRENNER, Jr.,
JAY INSLEE, Washington Wisconsin, Ranking Member
JOHN B. LARSON, Connecticut JOHN B. SHADEGG, Arizona
HILDA L. SOLIS, California GREG WALDEN, Oregon
STEPHANIE HERSETH SANDLIN, CANDICE S. MILLER, Michigan
South Dakota JOHN SULLIVAN, Oklahoma
EMANUEL CLEAVER, Missouri MARSHA BLACKBURN, Tennessee
JOHN J. HALL, New York
JERRY McNERNEY, California
------
Professional Staff
David Moulton, Staff Director
Aliya Brodsky, Chief Clerk
Thomas Weimer, Minority Staff Director
C O N T E N T S
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Page
Hon. Edward J. Markey, a Representative in Congress from the
Commonwealth of Massachusetts, opening statement............... 1
Prepared Statement........................................... 3
Hon. F. James Sensenbrenner, Jr. a Representative in Congress
from the State of Wisconsin, opening statement................. 5
Hon. Earl Blumenauer, a Representative in Congress from the State
of Oregon, opening statement................................... 6
Prepared Statement........................................... 7
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 9
Hon. Hilda Solis, a Representative in Congress from the State of
California, opening statement.................................. 9
Prepared Statement........................................... 11
Hon. John Sullivan, a Representative in Congress from the State
of Oklahoma, opening statement................................. 12
Hon. Marsha W. Blackburn, a Representative in Congress from the
State of Tennessee, opening statement.......................... 13
Prepared Statement........................................... 14
Hon. Emanuel Cleaver II, a Representative in Congress from the
State of Missouri, Prepared Statement.......................... 16
Witnesses
Mr. John B. Stephenson, Director, Natural Resources and
Environment, Government Accountability Office.................. 17
Prepared Testimony........................................... 19
Answers to Submitted Questions............................... 00
Mr. Mike Kreidler, Washington State Insurance Commissioner....... 43
Prepared Testimony........................................... 45
Answers to Submitted Questions............................... 00
Mr. Frank Nutter, President, Reinsurance Association of America.. 54
Prepared Testimony........................................... 57
Answers to Submitted Questions............................... 00
Submitted Materials
Hon. Jerry McNerney and Hon. John Shadegg--A report of Working
Group I of the Intergovernmental Panel on Climate Change,
Summary for Policymakers, 2007................................. 89
Hon. John Sullivan--Report from the American Geophysical Union:
Counting Atlantic Tropical Cyclones Back to 1900, May 1, 2007.. 107
Hon. Edward J. Markey--GAO Report: Climate Change Insurance Risk,
March 2007..................................................... 111
ECONOMIC IMPACTS OF GLOBAL WARMING: PART I--INSURANCE
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THURSDAY, MAY 3, 2007
House of Representatives,
Select Committee on Energy Independence
and Global Warming,
Washington, DC.
The committee met, pursuant to call, at 3 p.m. In Room
2359, Rayburn House Office Building, Hon. Edward J. Markey
[chairman of the committee] Presiding.
Present: Representatives Markey, Blumenauer, Inslee, Solis,
Herseth, Cleaver, Hall, McNerney, Sensenbrenner, Shadegg,
Walden, Sullivan, Blackburn and Miller.
The Chairman. Good morning. Thank you for joining us today
as we begin to examine the critical issues surrounding the
economic impact that global warming will have on our society.
The focus of today's hearing is on the potential economic harm
from weather-related losses, both insured and uninsured, as our
planet heats up from global warming.
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.
Last week the select committee heard testimony from some of
the country's leading scientists that we are fast approaching
dangerous climate change. Hurricane expert Dr. Judith Curry
testified that globally the number of the most severe storms,
Category 4 and 5 hurricanes, has nearly doubled since 1970.
Scientists are telling us that in the future global warming
will cause even more extreme weather events such as droughts,
floods, heat waves and more intense storms and hurricanes.
According to testimony we will hear today from the
Government Accountability Office, private insurers are
increasingly factoring aspects of global warming into the
determinations of their overall exposure to catastrophic risk.
For many private insurance companies, global warming now means
that when determining risk, the past is no longer prologue.
The Federal Government runs two insurance programs, the
National Flood Insurance Program and the Federal Crop Insurance
Corporation, both of which are vulnerable to global-warming-
related losses. In fact, the effect of a growing number of
catastrophic climate events may be greater on these Federal
insurance programs than on many private insurers because they
have not yet begun to factor in the increasing risk from global
warming.
In addition, the total exposure of the Federal insurance
programs has grown dramatically in recent years. The exposure
of Federal flood insurance has quadrupled since 1980 to over $1
trillion. Federal crop insurance coverage has expanded almost
26-fold over the same period. This expansion has further
increased the threat that extreme weather poses to Federal
insurers.
The Federal Government is also vulnerable because it is
often the insurer of last resort, providing insurance programs
when private insurance markets are insufficient or do not
exist, and providing disaster relief to storm-ravaged areas. As
losses from severe weather have increased over the last few
decades, so have the number of Presidential disaster
declarations. For many catastrophic climate events in the
future, it could primarily be the Federal Government that will
pick up the tab.
Insured losses represent just a fraction of total losses.
Insured losses account for no more than 40 percent of the total
weather-related losses as most of this damage is uninsured.
Therefore, weather's total cost to America since 1980 is most
likely greater than $800 billion.
We are just beginning to face the escalation of these
losses. Take, for example, Shishmaref, Alaska. It is one of
over 100 villages in Alaska facing imminent relocation as a
combination of less sea ice and more intense storms wipes out
the very land they inhabit. It will cost over $250 million to
relocate Shishmaref alone, and that cost will fall on the U.S.
taxpayers because these Native villages are the responsibility
of the Federal Government. The Congress needs to understand
that risk and to implement real solutions to cut global warming
pollution.
I now would like to turn and to recognize the Ranking
Member of the select committee, the gentleman from Wisconsin,
Mr. Sensenbrenner.
[The statement of Mr. Markey follows:]
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Mr. Sensenbrenner. Thank you very much, Mr. Chairman.
Today's hearing of the select committee brings a series of
discussions by this panel on the economic impact of climate
change. While there has been much attention paid to climate
change science by the media and some politicians, there has
been far too little talk of the economic consequences of
climate change in the policy proposals that are supposed to
address this issue. I know that I, for one, am anxious for this
to be. The economic impact is just another topic where
alarmists pump a gallon of hysteria out of an ounce of fact.
Today we are looking at how global warming affects
hurricanes, insurance rates and payments. The implications are
that global warming creates more powerful storms, which in turn
cause more damage. Al Gore's movie uses a busy 2005 hurricane
season to illustrate the catastrophe that is sure to come the
day after tomorrow. Inconveniently for us, however, Mr. Gore's
movie fails to provide the larger context and perspective on
hurricane cycles, but it is able to juice fear and uncertainty
out of people by not giving the whole picture.
As I mentioned, there is an ounce of facts to the alarmist
claims. The number of major hurricanes has increased since
1995, but as the University of Colorado at Boulder researcher
Roger Pielke, Jr., pointed out in August of 2005, the recent
hurricane trend fits perfectly with the multidecade hurricane
cycles that have been well documented since at least 1900. In
fact, a study released yesterday by Chris Lancey, a scientist
at the National Hurricane Center, said that there is absolutely
no evidence linking global warming and hurricane strength;
repeat, absolutely no evidence linking global warming and
hurricane strength. Lancey said, quote, there is no link to
global warming that you could see at all, unquote.
But hurricanes with their menacing eye sure make for a
scary picture. And, quite frankly, if you are living in a
coastal region prone to hurricanes, you should have a healthy
fear of these deadly storms. This was as true for the residents
of Galveston, Texas, in 1900, the site of the deadliest
hurricane in U.S. history, as it is today for millions of
people who live in the path of hurricanes along the Atlantic
and gulf coast.
It is a fact that hurricanes are causing more damage than
they have ever done before. It is also a fact that there are
millions more people living in the path of hurricanes today
than did so in 1900, and the homes and buildings they occupy
are much more expensive. Despite the hysteria, the raise in
hurricane-related damage is because more people live in the
path of hurricanes. And where did I learn this fact? From the
recent report by the U.N.'s World Meteorological Organization,
the parent group of the U.N.'s Intergovernment Panel on Climate
Change.
The November 2006 report from the International Workshop on
Tropical Cyclones said, and I quote, the recent increase in
societal impact from tropical cyclones has largely been caused
by the rising concentration of population and infrastructure in
coastal regions, unquote. This report said that no individual
hurricane can be attributed to global warming, and that no firm
conclusions can be made as to whether climate change is
affecting hurricane activity. And if you don't believe Dr.
Pielke, this report also notes that historical multidecade
trends in hurricane activity make it difficult to make
conclusions about the current hurricane trends.
Fortunately, the GAO report also noted the relationship
between development in hurricane-prone areas and increase in
damages these storms cause. That is not to make light of
hurricanes and the damage they bring, but as we look to ways to
recover from weather-related damages, we should focus on the
core issues of development and preparation and not be
distracted by undocumented hype.
Republicans will insist that any climate change policy
include four principles. It must tangibly help the environment,
it must support technological advantages, it must protect jobs
in the economy, and it must include global participation
including China and India.
Preparing for hurricanes is also good policy, but it is not
part of climate change policy. I worry that overzealous
economic policy designed to fix global warming won't reduce
hurricane damage at all, but instead create economic storms
that hit not just the residents on the coast, but people all
over the country. And I thank the gentleman.
The Chairman. The gentleman's time is expired.
The Chair recognizes the gentleman from Oregon Mr.
Blumenauer.
Mr. Blumenauer. Thank you. I appreciate the opportunity to
have this discussion today. It is something I have spent a lot
of time working on, dealing with flood insurance reform in the
past. Regardless of one's perception of global warming, the
fact is 75 percent of our population is at risk for one or more
natural disasters and is increasing as people move to
coastlines and the urban/wildlife interface. Even without
climate change we have seen the cost of natural disasters
skyrocketing, a fivefold increase during the last decade for
disaster relief funding. There has not been a billion-dollar
loss before 1989. From 1989 to 1998, there were 10 disasters
where the insurance industry suffered a billion dollars or
more.
Climate change will make this worse with the intensity of
future hurricanes. And as we heard from Dr. Helms at the last
hearing, a warmer climate means wildfires are more frequent and
intense. It is nobody's business in the Federal Government
right now to really look at these big-picture issues in
Congress, and, Mr. Chairman, I appreciate your doing this.
Through the prism of global warming, we may be able to
encourage some more rational Federal policies in terms of
mitigation. A dollar spent in mitigation will save us $4 or
more from FEMA costs. We have seen the World Bank suggest that
a $40 billion worldwide investment would have saved $280
billion. It is an intersection of flawed government policies,
lack of sound land use planning, goofy things where we spend
money after the fact to deal with people. We won't spend money
before the fact for prevention, and work that we may do with
climate change may be the most important preventive acts of
all.
I have a somewhat longer statement I would like to put in
the record, but I appreciate where we are going with this.
Thank you.
The Chairman. Thank you. The gentleman's time has expired.
[The information follows:]
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The Chairman. The Chair recognizes the gentleman from
Oregon for an opening statement.
Mr. Walden. Thank you very much, Mr. Chairman. I will keep
mine brief.
I look forward to hearing from our witnesses. I look
forward to comments about why insurance claims are up. And I
think the Ranking Member made some very eloquent comments that
perhaps we have a lot more people living in a lot more
expensive homes a lot closer to the water where these
hurricanes occur than we had 20, 30, 50, 100 years ago.
My staff had provided me with this most recent study that
just came out that indicates that hurricanes, the recent spate
of strong hurricanes, can't be linked to global warming
because, as it says here, scientists are incapable of
determining whether stronger storms appeared at a time when
people were unable to report them accurately or measure their
strength, according to a study published yesterday in the U.S.,
which I think other of my colleagues are going to represent.
And I concur with my colleague from Oregon, there are some
rational things we can do to deal with--on our part, with
climate change. He referenced forest fires. It is an area of
incredible interest for me to try to deal with better forest
management, both in terms of reducing catastrophic wildfire
that burns unnaturally in my part of the world and emits
enormous amounts of carbon and other greenhouse gases into the
atmosphere, but also deal with the fact that this government
has failed the forest time and again. There is a million acres
that were burned and never been replanted. And we all know that
vegetation makes for pretty good carbon sink. And you got a
million acres out there of Federal forestlands that have burned
and never been replanted, according to the Government
Accountability Office. So maybe we can help spur along some of
these other things, too, that I know all of my colleagues care
about that; healthy green forests that are more fire resistant
and better carbon sink.
So with that, Mr. Chairman, I yield back the balance of my
time.
The Chairman. The gentleman's time is expired.
The Chair recognizes the gentlelady from California Ms.
Solis.
Ms. Solis. Thank you Mr. Chairman, and thank you for having
this hearing and bringing forward these witnesses that we are
going to hear from today.
I represent the State of California, and we just
experienced a very traumatic freeze that had a devastating
effect on our agricultural industry, and we are still assessing
what that damage is.
In addition, that hit a lot of poor communities there in
California. So I am equally concerned about the impact that we
are having on a loss of jobs, insurance, and also what else is
occurring in California with respect to drought and
firefighters.
In California, in 2003, we had as many as 14 wildfires.
About 800,000 acres were burned, 3,300 homes were destroyed,
100,000 residents had to run for their lives, and 22 people
died. These are effects that are occurring. And, of course, we
want to be very helpful in our role as Members of Congress to
see how we can provide assurances that our communities are safe
and what we can do in helping to prepare that.
But again, I am very concerned about our economy and the
impact that this will have in low-income communities,
communities that I represent, for example, and across the
country, and look forward to hearing from you and your
testimony. Thank you.
[The information follows:]
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The Chairman. The gentlelady's time is expired. The
gentleman from Oklahoma Mr. Sullivan.
Mr. Sullivan. Thank you, Mr. Chairman, and thank you for
holding this important hearing today where we will hear
testimony on the impact of global warming on the insurance
industry.
According to a study published Tuesday in the American
Geophysical Union's journal, EOS, the recent wave of strong
hurricanes cannot be linked to global warming. Scientists are
unable to determine whether strong storms, storms on par with
Hurricane Katrina and Andrew, occurred earlier in our Nation's
history since technology was not advanced enough to determine
hurricane strength. The study references charts of the 1933 and
the 2005 hurricane season, two of the busiest hurricane seasons
on record. In 1933, all the storms only appeared on the
satellite image fairly close to land, while in 2005, we were
able to watch them develop far off in the Atlantic and move
towards the U.S.
By looking at these two charts, we are able to see how our
technology has increased in hurricane tracking. While the 2005
hurricane season, when we saw powerful hurricanes Katrina and
Rita, was certainly notable, and relatively light in the 2006
season backs up the study's findings, to make the assumption
that hurricanes have gotten stronger because of global warming
is stretching the truth because we simply do not have the
evidence to back it up.
With the total damages of over 80 billion and the Federal
disaster declarations covering over 90,000 miles, Hurricane
Katrina certainly left her impact on the gulf coast, its
residents and the insurance companies. Companies have been
forced to either stop offering coverage in the area or have had
to dramatically raise their premiums to be able to offer
coverage to gulf coast residents.
I look forward to hearing from our witnesses today on how
they have been impacted by the storms while we keep in mind
that strengthening hurricanes cannot be tied to global warming.
And also, Mr. Chairman, I would like to ask unanimous
consent that this report published by the American Geophysical
Union could be added to the record. The report is from the
National Oceanic and Atmospheric Administration.
The Chairman. Without objection, it will be included in the
record.
The Chair recognizes the gentlelady from South Dakota Ms.
Herseth.
Ms. Herseth. Mr. Chairman, I will reserve my time for the
question-and-answer period. Thank you.
The Chairman. The Chair recognizes the gentleman from New
York Mr. Hall.
Mr. Hall. I will also reserve my time, Mr. Chairman. Thank
you.
The Chairman. The Chair recognizes the gentleman from
California.
Mr. McNerney. I will reserve my time, Mr. Chairman. Thank
you.
The Chairman. The Chair recognizes the gentleman from
Washington State.
Mr. Inslee. I will reserve my time, but I would like to
welcome Mike Kreidler, a former colleague. Whenever he is in
D.C., we are in the Majority, and things are going well, so we
appreciate your being here, Mr. Kreidler.
The Chairman. The Chair recognizes the gentlelady from
Tennessee.
Mrs. Blackburn. Thank you, Mr. Chairman. I want to thank
you for the hearing, and I want to thank our witnesses who have
come before us today. And I want to thank you also for the
well-planned and prepared testimony that you gave us to have
the opportunity to review prior to your coming here today.
And one of the things that I have noted is--it seems to
occur time and again--and that is you all continue to present
the issue of what the role of government should be and how it
should fit in as we look at insurance and the predictability of
those offerings.
Over the past couple and a half decades, many people in
businesses have experienced disasters that are caused by
weather-related events, and the damages have increased tenfold.
We see that continually. The main reason for the increases in
insurance losses is due to economic development, as has been
stated by the Ranking Member; growth, economic growth and
development in those disaster-prone areas that experience
severe economic loss from disasters or severe weather hazards.
Under the free market private insurers exam, their exposure to
catastrophic risk can determine the extent of coverage and what
rates to impose.
What we are hearing following Katrina, and in more
repetitive circumstances, the risk is so great that the private
sector deems hazards to be uninsurable or must establish very
high rates that the property owners find unaffordable. And when
this happens, then we are seeing that land owners and property
owners will seek out programs and seek to insure their property
through Federal programs or rely on Federal assistance when
they do experience a disaster. But these government programs
and Federal disaster assistance programs contain two serious
weaknesses, and these are my primary concern for today.
First, they fail to address the financial risk and growth
and development by assessing and limiting the catastrophic risk
strictly within their ability to pay claims on an annual basis.
And second, they fail to contain restrictions on whether
insurance coverage should be available in areas that have a
history, a long-term history, of disasters in severe weather
hazards.
Mr. Chairman, I thank you for the hearing. I am looking
forward to hearing from our witnesses and will look forward to
addressing these two issues.
The Chairman. Thank you very much.
[The information follows:]
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[Prepared statement of Mr. Cleaver is as follows:]
[GRAPHIC] [TIFF OMITTED] 57966A.007
The Chairman. And the time has expired for opening
statements from Members, and we now turn to our witness panel.
And we will turn to our first witness, Mr. John Stephenson,
who--Mr. Stephenson is the Director of Natural Resources and
Environment Issues for the U.S. Government Accountability
Office. He brings a wealth of knowledge and experience on a
variety of environmental subjects, including today's topic,
global warming.
Mr. Stephenson, welcome, and please begin.
STATEMENT OF JOHN B. STEPHENSON, DIRECTOR, NATURAL RESOURCES
AND ENVIRONMENT, GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Stephenson. Thank you Mr. Chairman and members of the
committee. My testimony today is based on a report we issued
last month on the potentially significant risks facing private
and Federal insurers as a result of climate change.
One of the most important aspects of our study was to begin
to show the significant economic implications of climate change
by examining one of the Nation's most important and forward-
looking sectors, the insurance industry.
The uncertain and potentially large losses associated with
weather-related events are among the biggest risks that
property insurers face. Projections by the Intergovernmental
Panel on Climate Change, the IPCC, expect warmer surface
temperatures to increase the frequency or severity of many
damaging weather events, such as flooding and drought. As you
know, the IPCC is a large international body of scientists that
was established by the World Meteorological Organization and
the United Nations Environmental Program in 1988 to synthesize
scientific information on the impacts of climate change.
The IPCC is widely recognized as the leading authority on
this topic. Its assessments are thoroughly reviewed by hundreds
of scientists, approved by member countries, and had been
endorsed by both the National Academies of Science and the U.S.
Government's Climate Change Science Program. One key IPCC
conclusion worth noting is that observed temperature increases
during the 20th century cannot be explained by natural
variability alone, but are largely attributable to human
activities.
To determine the implications of climate change that it may
have on the insurance industry, we examined data from several
different sources and found that insurers paid claims of more
than 320 billion in weather-related losses from 1980 through
2005. Private insurers paid about 75 percent of this total,
while the two large Federal insurance programs, the National
Flood Insurance Program and the Federal Crop Insurance
Corporation, account for the remaining 25 percent.
Importantly, we know that insurance data alone
significantly understates the total economic damages wrought by
weather-related events. Experts estimate that insurance losses
represent only about 40 percent of the total economic damages.
They do not account for losses suffered by the un- or
underinsured, which often receive direct disaster assistance
payments from the Federal Government and others, and for the
cost of rebuilding public infrastructure such as highways. Both
Federal and private insurers have experienced a significant
growth in total exposure, that is financial risk of loss, over
this same period of time due to the increase in the number of
policyholders, property value increases and residents in
hazard-prone areas.
Indeed, Mr. Chairman, as you have already mentioned, the
Federal Government's exposure under the Flood Insurance Program
has quadrupled to nearly $1 trillion, and crop insurance has
increased 26-fold to 44 billion.
So these ever-increasing levels of exposure and the
significant financial risks they pose make the IPCC's
predictions about increases in frequency or severity of
damaging weather-related events, including hurricanes in
coastal areas, but also droughts in the Western Plains, all the
more important.
A key finding in our report is that while both private and
Federal insurers face similar risks associated with climate
change, the two sectors are responding in very different ways.
Private insurers are proactively incorporating elements of
climate change into their annual and strategic risk management
practices and reducing their exposure to the financial risks
posed by extreme weather events by, for example, increasing
premiums, altering deductibles, and are limiting coverage in
specific weather-prone areas.
In contrast, the Federal programs have done little to
incorporate the increased likelihood of extreme weather events
associated with climate change into their risk management
practices. Failure to anticipate the implications that shifting
climates could have on Federal insurance programs could open
the Federal budget and the taxpayers who fund it to
unquantified risk and to serious financial consequences.
We acknowledge in our report that the mandate and operating
environment of the major Federal insurance programs are
significantly different from that of the private sector. Unlike
the private insurers who are expected to turn a profit, the
Federal insurers are directed in statute to prioritize broad
participation over financial self-sufficiency. Nevertheless
they are expected to be sound stewards of the taxpayers' money
and should not rely solely on the U.S. Treasury to bail them
out.
Accordingly we recommended in our report that both Federal
insurance programs analyze the potential long-term fiscal
implications of climate change on their respective programs and
report their findings to the Congress. We believe that such
foresighted information is essential to help the Congress and
the Federal agencies manage this emerging high-risk area, one
that potentially has significant implications for the Nation's
growing fiscal imbalance.
Mr. Chairman, that concludes the summary of my statement. I
would be happy to answer questions at the appropriate time.
The Chairman. Great. We thank you Mr. Stephenson very much.
[The statement of Mr. Stephenson follows:]
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The Chairman. And our next witness is somebody who it is my
pleasure to welcome back to Congress, our former colleague.
Many of the members on this committee served with Mike in his
service here in the United States Congress. He is now the
Washington State insurance commissioner. He was first elected
to his current post in 2000. He was reelected in 2004. He has
been in public service for more than 30 years. The impact of
global warming is of particular interest to him because he is
one of the coleaders of a task force examining the issue for
the National Association of Insurance Commissioners.
Mike, welcome back. It is good to see you again. And
whenever you are ready, please begin.
STATEMENT OF MIKE KREIDLER, WASHINGTON STATE INSURANCE
COMMISSIONER
Mr. Kreidler. Thank you very much, Mr. Chairman and members
of the committee. It is a pleasure to be here and have an
opportunity to speak to this topic.
Let me tell you, Mr. Chairman, that one doesn't have to
look very far to see what has happened to insurance as a result
of very serious storms, particularly hurricanes, in 2004 and
2005. And you can take a look at insurance companies that have
looked at certain areas of the country where, quite frankly,
they have chosen to abandon markets and are withdrawing from
them, or increasing the kind of costs that effectively
represent a lack of availability to people who need them.
The standpoint of the States that are impacted is one where
you are going to see some States that are large enough to have
the kind of buying power of insurance that they can exercise
perhaps more control over the insurance market by virtue of
requiring companies to remain in certain markets even when they
don't want to or would withdraw, but make it a condition as to
being able to sell other products within their particular
State.
Obviously, Hurricane Katrina represented the most
significant impact from the standpoint of an insurable impact
that we have witnessed, but coming from the State of
Washington, and I can speak from the standpoint of the
Northwest as a whole, and your three Members from the
Northwest, hurricanes are not exactly what we are focused on up
there. But we are very much focused on what happens when we
start to get a great deal more precipitation that doesn't stay
around as snow, and when that happens, it has a drastic impact.
We saw an indication of what that can represent in November
with record rainfalls that took place, followed by the next
month in December with record winds that wreaked considerable
damage. Two million people were without power; nearly two dozen
people died; serious property losses as a result. Droughts and
forest fires, the problems of disease in trees because of the
nature of the changing weather can have a very significant
impact.
Looking to the world of the insurance community as to what
they can do and what they aren't doing, we see that from the
standpoint of the reinsurers, particularly international
reinsurers, Mr. Nutter will be speaking to that, and you will
see that they have been taking a very close look at the
problems of climate change and have become vigorously involved
with the issue. Part of it, to be honest, is because of
recognizing the kind of threat that it represents to their
industry without being engaged in this. But it is also the
global aspect of reinsurance and the view that they have.
Primary insurance, or insurance that is sold directly to
the purchaser, companies, tends to be much more domestic in the
United States, and in the State of Washington for that matter,
that you wind up with them not having the same perhaps global
view that you have with the reinsurers. Primary insurance in
Europe, for example, has become much more engaged with the
issues related to climate change than we have seen here in the
United States. That is something that I believe reflects
perhaps more of the Europeans taking a longer view of what is
taking place as opposed to a shorter view that might be more
inherent in how we viewed it here in the United States.
Insurance regulators have the opportunity to certainly make
sure that the markets out there are viable, that there are
products that are still going to be sold, that we are making
sure that the products and services that are provided are stood
behind by the companies that are licensed and approved to do
business in our various States.
Finally, there are some areas where I believe that Congress
can take some leading role. Obviously at the local level there
are issues related to land use, to zoning and building codes
that are clearly ones that can be impacted at the local level.
I am a member of a climate action team that has been created in
the State of Washington by our Governor. There is also clearly
very much a need for a national greenhouse policy to be adopted
at the national level, and specifically a program that I look
at, which would be the one that deals with the National Flood
Insurance Program, where I believe that clearly directing that
program and reforming it could have a very pronounced impact on
what we are doing.
Clearly, Mr. Chairman, there is an opportunity here to make
some changes in how we deal with insurance at the State, at the
local, at the national level, and we would be glad to
participate in helping develop that. Thank you, Mr. Chairman.
The Chairman. Thank you, Mike, very much.
[The statement of Mr. Kreidler follows:]
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The Chairman. And our final witness is Frank Nutter. He is
the president of the Reinsurance Association of America. Mr.
Nutter brings nearly 30 years of experience in the insurance
industry to the hearing today. He serves as an advisor to four
scientific research institutions and has previously chaired the
Natural Disaster Coalition, an effort to develop a program to
respond to catastrophic earthquakes, hurricanes and volcanic
eruptions in the United States.
Mr. Nutter, welcome, and please begin.
STATEMENT OF FRANKLIN W. NUTTER, PRESIDENT, REINSURANCE
ASSOCIATION OF AMERICA
Mr. Nutter. Mr. Chairman, thank you very much, and thank
you for that introduction, Ranking Member Sensenbrenner,
members of the committee. Reinsurance is essentially the
insurance of insurance companies. Insurance companies lay off
risk to the reinsurance community, notably for catastrophic
events.
There is no financial services business more dependent on
the vagaries of climate and weather than property casualty
reinsurers and insurers. The industry is at great risk if it
does not understand global climate variability and the
frequency and severity of extreme events. Understanding global
climate change and integrating that information into the
insurance system is an essential part of addressing climate
extremes and conveying information to government and the public
about the economic consequences of human activity in the face
of changing global climate.
The GAO has reported on the extraordinary series of losses
paid by private insurers and public insurers in the last few
years. In 2005 alone, a record year, the global insurance
catastrophe claims were $83 billion, 80 percent of which were
from U.S. land-falling hurricanes. As bad as those numbers are,
AIR Worldwide estimates that insured natural catastrophe losses
could be expected to double every 10 years.
With respect to the impact of climate change alone, the
Association of British Insurers concludes that the average
annual losses from the three major storm types affecting
insurance markets, that would be U.S. hurricanes, Japanese
typhoons and European windstorms, could increase by two-thirds
by the 2080s. The climate change could increase wind-related
insured losses from extreme U.S. hurricane events by three-
quarters, the equivalent of two to three Hurricane Andrews
annually. It could increase wind-related insured losses from
extreme Japanese typhoons by about two-thirds, and the cost of
flooding in the U.K. by fifteenfold. Under high emissions
scenarios, insurers' capital requirements could increase, the
ABI says, by over 90 percent for U.S. hurricanes. Higher
capital costs combined with greater annual losses from
windstorms alone could result in premium increases of around 60
percent in these markets, the ABI concludes.
It should be noted that the ABI's estimates do not include
the likely increase in society's exposure to extreme events due
to growing, wealthier populations and increasing assets at
risk.
The chief researcher of catastrophe modeler Risk Management
Solutions estimates that even when inflation changes in wealth
and population growth are taken into account, financial losses
from weather-related catastrophes have increased by an average
of 2 percent per year since the 1970s, with climate change a
contributing factor.
It is quite clear that the causes behind the dramatic rise
in insured catastrophe losses are several: Population growth in
high-risk areas, increases in insured coastal values, the
insurance industry's own expansion of insurance coverage,
government policy which has encouraged weak building codes or
failed to enforce building codes, and climate change.
The insurance industry's financial interest is
interdependent with climate and weather. It is the risk of
natural events which drives the demand for insurance coverage,
and yet, if not properly managed, can threaten the viability of
an insurer if it is overexposed in high-risk areas.
As a result of Hurricane Andrew, the industry began to
recognize that due to unanticipated climate variability,
historical data were potentially misleading with respect to
future natural catastrophe events. Swiss Re concluded that
climate change over time will affect weather and weather
patterns.
As has been noted, a number of European insurers and
reinsurers have shown great interest in understanding the
causes of climate change, including the impact of global
warming. U.S. insurers have been more focused on the effect of
extreme weather events. The U.S. industry has been more
attentive to approaches to mitigate the consequences of natural
catastrophes and extreme events. Thus the industry's agenda has
included the evaluation of building codes and building code
enforcement. And through the Institute for Business and Home
Safety, the U.S. industry has greatly enhanced its support for
hazard mitigation by conducting research on building designs
and building materials.
The initiative most related to scientific assessment of
climate change and insurance is the use of computer catastrophe
models to integrate that science into the actuarial sciences.
These assist an insurer in evaluating its exposure and are used
to support insurance rates. Utilizing these models and
retracing hurricane events in the past onto current population
in today's built environment, potential insured losses are
alarming. The Miami hurricane of 1926 would cost $80 billion in
insured losses alone. Hurricane Andrew in 1992 would now cost
$42 billion; at the time it was an $18 billion event. The 1900
Galveston, Texas, storm, which was mentioned earlier, in
today's dollars would be a $33 billion insured loss event. And
the 1938 Long Island Express would be $35 billion.
If climate change has increased the intensity of future
storms, these numbers will rise. If climate change increases
the frequency of extreme events, the consequence is obvious.
In May 2006, the Chief Risk Officer Forum, a group of 13
European insurers, issued a report concluding that climate
change has the potential to develop into the greatest
environment challenge of the 21st century.
Insurers are in the business of assessing risk, pricing it
and providing risk financing or transfer. Its long-term
strategy does not include bearing the cost of climate change
without a concomitant commitment on the part of society to
pursue a mitigation strategy addressing both the causes and
consequences of climate change.
Thank you very much.
The Chairman. Thank you, Mr. Nutter, very much.
[The statement of Mr. Nutter follows:]
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The Chairman. Now we will turn to questions from the
subcommittee.
Mr. Nutter, in your testimony you questioned the
sustainability of the insurance industry in the face of
increasing impacts from global warming. From the reinsurance
industry's perspective, what is the potential cost to the
economy from global warming in future decades?
Mr. Nutter. Well, it is obviously a very difficult question
to predict the future, which is why I referenced the
catastrophe models that I used to cite certain potential
insured losses that could come from events that have happened
in the past. The reinsurance community, particularly those that
study the science that has been published, is concerned that we
are seeing not only increased intensity of storms, but perhaps
increased frequency of storms. If that is true, and 2004 and
2005 are, in fact, prologue and become the normal hurricane
years, it certainly questions the insurability of areas that
are recurringly getting hit by these extraordinary loss
experiences.
The Chairman. Mr. Stephenson, the GAO has found that
government insurance programs approach risk by looking at the
past record as opposed to incorporating new climate science
findings or other means of projecting future conditions. How
did this rear-view-mirror approach differ from private
insurers?
Mr. Stephenson. Well, most of the catastrophe models that
they use are retrospective. They look in the past and assume
that any changes will be incorporated into their projections
for this year and next year, for example. The problem with that
is, as the insurance industry has indicated, that may not be
representative of the future. There may be more events. Their
total exposure is increased because of exactly what Mr.
Sensenbrenner described: More people moving to the coast,
higher property values. That increased exposure makes them more
susceptible to higher payments in the future if the IPCC
projections are true.
The Chairman. So what room do you see for FEMA to change
the model that it uses?
Mr. Stephenson. We don't know--I mean, there are a lot of
intricacies in the operation of both Federal insurance
programs. The Federal crop insurance is subsidized, of course,
by the Federal Government. It is not a total premium-based
system. But in general we recommended that they incorporate
climate change science into their projections. And Senators
Lieberman and Collins asked them to submit a report to their
committee on how they intended to do that, although I don't
know the timeframe for that report.
The Chairman. So to each of you, whoever wants to take
this, the scientific understanding of the climate system is
continually improving. From your perspectives, how is new
scientific knowledge effectively being incorporated into the
insurance industry, and what would you suggest we as
legislators learn from that in terms of laws or regulations
that should be on the books?
Mr. Stephenson. Are you asking all three of us?
The Chairman. Any of you.
Mr. Stephenson. We think that the first step is for the
Federal programs at least to study the issue, look at their
programs and see how increased severe weather events might
affect those programs both from an actuarial standpoint and
from the number of policies they write and the coverage that
they provide. And that is the first step to understanding if
anything legislative needs to be done to those two big Federal
insurance programs.
The Chairman. Mike.
Mr. Kreidler. Mr. Chairman, I would suggest that because of
the complexity of the issues and the multiple facets to it,
that if there were a national commission that was charged
appropriately with the questions to be answered, that part of
what would come out of there would be how do you take future
risks, changing risk, and make sure that we are not
destabilizing the system that we presently have.
The Chairman. Thank you.
Now Mr. Nutter.
Mr. Nutter. What I would add to that is this. The insurance
mechanism integrates scientific information in its basic
actuarial database through these catastrophe models that most
insurance companies subscribe to or have within their own
processes. Most of the science that goes into those models is
really a result of government research programs; the National
Science Foundation, NOAA and other programs that the Congress
supports financially.
You are correct that there is clearly an improving
understanding of climate and weather, and continued research to
try and resolve some of the questions that get raised about
whether or not a climate-changed environment is affecting the
intensity and frequency of storms would be a high priority for
government officials and the industry to understand.
The Chairman. Great. Thank you, Mr. Nutter.
My time is expired. The Chair will recognize the gentleman
from Wisconsin Mr. Sensenbrenner.
Mr. Sensenbrenner. Thank you very much, Mr. Chairman.
On page 2 of Kreidler's testimony he says, quote, still
because of global warming and insufficient data as to prior
events, the predictive accuracy of catastrophe models has not
proven to be as great as once hoped, unquote.
Now, with that statement, which I agree with, and the fact
that it is a natural reaction for an insurance company to
overcharge their premiums to build up reserves so they don't
get wiped out if there is really a catastrophe, Mr. Kreidler,
in your role as an insurance regulator for Washington State,
have you been able to determine how much of the increase in
premiums there has been as a result of what the insurance
companies do to make sure that they have a big enough pot of
reserves to meet all future predictive claims, and how much of
this is actually caused by actual data relating to climate
change?
Mr. Kreidler. Thank you, Mr. Sensenbrenner. That particular
issue is very germane because of the nature of how tax policy
impacts insurance companies as to the kind of reserving that
they do. They tend to be much more responsive to events that
have already happened as opposed to what is taking place in the
future.
An example of the difference of how that could be dealt
with from the standpoint of how companies could do a better job
of reserving would be to take a look at how European insurance
companies typically are treated by their governments from the
standpoint of tax policy that allows them to do more
prospective reserving for future losses. Even the system in our
country from the standpoint outside of the tax policy is not
positive from the standpoint of allowing those reserves to be
there without having an impact on what they then charge in
future rates; meaning that if they have those reserves there,
they are making reserve income on investments, and you run into
a situation where they effectively are being punished or told
that their rates cannot be higher as a result of the reserves
that they have in accrual. That does not make the kind of
thinking of what about the losses that we may incur in the
future? We should be able to make sure that companies have the
kind of reserves there so they don't artificially raise rates
on speculation that they may have losses that they may not be
able to sustain.
Mr. Sensenbrenner. If I were the CEO of an insurance
company, and I came before you to get you to sign off on an
insurance rate increase due to climatic conditions or things
like that, what would you make me demonstrate to you to get
approval of the rate increase, aside from me saying that based
on our Ouija board, we need to have so much money in reserve to
make sure that if something really bad happens, we don't go
broke?
Mr. Kreidler. Mr. Sensenbrenner, I would tell that
insurance company executive that we are still in a position
right now from the standpoint of you building up these reserves
that it is difficult for us as insurance regulators to look at
that and say that you are building up those reserves. But there
isn't a mechanism right now to make sure that those reserves
are only used for those kind of catastrophic losses. At this
point there isn't a particular reserving that is catastrophic
in its nature that would allow us to treat them separately.
Mr. Sensenbrenner. So what you would be saying to me is
that I need to be much more specific as an insurance company
executive in terms of the data that I would submit to you for
your review before you would give me the sign-off to raise
rates on my customers?
Mr. Kreidler. That is correct, Mr. Sensenbrenner. We need
to wind up making sure that there is some kind of bookends
applied to that kind of reserving that takes place that is
different than the other kinds of reserving as to solvency
standards that are required of an insurance company outside of
what might be anticipated in catastrophic losses.
Mr. Sensenbrenner. So getting back to page 2 of your
testimony, the predictive accuracy of these models is not good
enough to sustain my asking for you to approve a higher rate if
I were running an insurance company?
Mr. Kreidler. At the present time that is correct.
Mr. Sensenbrenner. Thank you, Mr. Chairman.
The Chairman. The gentleman's time is expired.
The Chair recognizes the gentleman from Oregon Mr.
Blumenauer.
Mr. Blumenauer. Thank you.
I listened with interest to my colleagues on the other side
of the dais talk about this most recent report about cyclones
and tropical storms going back to 1900. As I read this, just in
the first paragraph, the frequency of tropical cyclones has
changed over time and whether that could be linked to global
warming.
I am interested in your consensus and that of the
scientific community not about the frequency, but about the
intensity that with global warming we are going to have more
unpredictable weather, that there is going to be greater
impact, whether there are more or less, and there are some who
think there will be more extreme weather events.
Starting with you, Mr. Stephenson, is there anything that
you have heard here today about the frequency maybe being in
line with historical patterns that does anything to allay your
concern about the impact of the consensus of the scientific
community that global warming is going to lead to greater
intensity of these storms and their devastation?
Mr. Stephenson. Well, GAO is not a science organization,
but we do hire a lot of smart analysts who have science
backgrounds. Having said that, we sort of hung our hat on the
IPCC, which is kind of the source authority for synthesis of
science in the world. Their predictions are that intensity and/
or frequency of severe storms is likely to increase, and likely
means a 66 percent chance of increasing. That is what we based
our study on. That is why we feel it is important for the
Federal insurance programs to consider this information in
their outlooking projections.
Mr. Blumenauer. And I would ask the other witnesses if
there is any concern that you have in your research that we
shouldn't be apprehensive about, increased intensity? Mr.
Nutter.
Mr. Nutter. If I could answer that, I am going to read from
a statement by Swiss Re Insurance, which does have scientists
on its staff and looks at these things, and they cite a study
by Webster and Holland. And I don't have the specific
reference, but I will get that for you. It indicates a trend
since about 1970 toward more intense tropical cyclones.
Continuing with the Swiss Re statement, in early 1970s, 17
percent of all tropical cyclones were Category 4 or 5. That
number has increased to 35 percent and increased two times
higher than was just 35 years ago.
So they are citing a scientific study, not an insurance
study, that would suggest that we are seeing more intense
storms. From my own statement, 3 of the top 10 most intense
storms ever recorded in North America were in 2005 alone. It
would appear we definitely have a period of increased and more
intense storms. In fact, the more moderate storms appear to be
declining, and the more intense storms appear to be increasing.
Mr. Blumenauer. Thank you, sir. I appreciate it.
Mr. Kreidler, I appreciated your reference to deep concerns
in the people that you work with about what government can do.
I noted in the work that I did in the aftermath of Katrina, I
was stunned to find out that three Louisiana parishes and seven
Mississippi counties had no building codes, none. Is there a
responsibility for us to link Federal insurance, Federal
assistance, to local and State communities that take at least
minimal steps to protect their own people and the Federal
Treasury?
Mr. Kreidler. Mr. Blumenauer, that is clearly something
that would help to make the world of insurance much more
predictable if, in fact, you had the kind of building code
standards and land use policies that were going to be much more
predictive of the kind of risks that were involved for losses.
The National Flood Insurance Program obviously is one of those
that could have a very pronounced and profound impact on those
flood-prone areas where flood insurance exists. The Federal
Government obviously could have some very significant guideline
effects in that program. The other is that if you tie it to
mortgage lending and making sure that those policies are
renewed so that they keep policies in effect, it would have a
very conducive impact.
The same from the standpoint of any Federal housing
programs, that the more that it is tied to making sure that
there are flood policies in effect or that you wind up with
other types of insurance being applied, it is going to be
positive.
Mr. Blumenauer. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. All right. The gentleman's time is expired.
The gentleman from Oregon Mr. Walden.
Mr. Walden. Thank you, Mr. Chairman. I want to thank our
witnesses for their testimony today. It is most helpful.
Mr. Kreidler, being a fellow Westerner, as you know, I
represent all of the eastern Oregon. I mentioned in my opening
comments about forest fires and certainly the cost, and others
have talked about that as well. Do you support changes at the
Federal level dealing with how we manage our Federal forests
and mitigate against these catastrophic fires we are seeing?
These were record levels in the last 3 or 4 years certainly of
fires.
Mr. Kreidler. Mr. Walden, to some degree I see a connection
here with insurance and clearly forest fires and their impact,
and I think we are going to be forced to take a look at any
number of our policies as they currently exist. The disease
impact on trees because of the changes that are taking place in
weather are profound, much less the problems of drought as we
are experiencing them now, meaning that we are much more
subject in ways that we had not historically been subject to
forest fire and the problems that result from that. I think it
is clear that we are going to be challenged to make changes in
our forest policy.
Mr. Walden. And the same, I assume, with our energy policy.
We should encourage renewables and energy production from
facilities that have very little, if any, carbon footprint. I
mean, is that--maybe that would help, but I realize that is
kind of out of the scheme of insurance. But if we are trying to
reduce carbon in the atmosphere, then wouldn't it make sense--
--
Mr. Kreidler. Mr. Walden, I would agree with that. I was a
member of the Northwest Power Planning Council, where we
clearly were involved in looking at the Federal dams on the
Columbia system; and when I was a Member of Congress I was on
the Energy Subcommittee, and carbon sanctions, sequestration
were issues that we were dealing with even way back then. I
think that it is clear that we are going to have to do a great
deal more using alternative energy and developing them to make
them economically viable. There is no question about it.
Mr. Walden. I appreciate that. I was looking at some data
on, for example, if the Snake River dams were to be removed;
and then the trade-off between hauling grain by barge versus
truck would be something like an additional 171,000 trucks on
the highways, which are clearly more polluting, I would assume,
than a barge floating down the river. And, obviously, the
energy production that comes from those facilities, while it
has its own set of issues involving fish and all, which I
respect, and we need to address any replacement powers, most
likely is going to have a carbon footprint, right? It is bigger
than hydro. I mean--are like the least emitting in terms of the
amount of power we consume and produce.
Mr. Kreidler. There are clearly some catch-22s, Mr. Walden,
that are presented because of wanting to make one change to
accomplish one particular environmental goal as the trade-off
against another; and we clearly see it when it comes to fish as
to the increasing amount of release of carbon into the
atmosphere. The same can be said when it comes to issues
related to nuclear power and how it can be applied as an
alternative fuel source.
Mr. Walden. Appreciate that. Thanks again for your
testimony.
Mr. Stephenson, the IPCC indicated that they really didn't
draw a distinction that there were increases in tropical storms
related to global change, isn't that correct?
Mr. Stephenson. They said that the increase intensity of
tropical storms is likely to increase in general. There is an
ongoing debate at the direct relationship between climate
change and extreme weather events, as was noted by the most
recent NOAA study. IPCC has been studying this for 15 years.
But renowned scientists all over the world, their studies are
peer reviewed. We think they are kind of the source authority.
But they did say that the intensity of storms would increase
likely.
Mr. Walden. That there is no evidence at this point that
clearly links the global warming to----
Mr. Stephenson. The debate continues.
Mr. Walden. Right.
The other issue I have is one I get asked about. We have
better technology now to measure these storms, identify these
storms. I think if you go back to the 1970s and before, we
didn't even have too many satellites that looked at this stuff,
right?
Mr. Stephenson. We absolutely didn't.
Mr. Walden. So how much of--as you have reviewed all of
these scientific journals and all, how much of the data that is
coming out now is sort of measured against what we didn't know
then versus what we know now? I am not asking that clearly. But
do you know what I am saying? We didn't have the ability then
to know every storm that is out over the ocean. Today, we do,
don't we? Is that factored in?
Mr. Stephenson. Yes, that is factored in.
Again, we are not a science organization. Our concern is
with the increased exposures that the insurance programs have
in light of more people moving to the coast, more expensive
homes, that if we have, as Mr. Nutter suggested, a repeat of
2005 twice a decade instead of every two decades, that poses
extreme financial risk on the Federal insurance programs. That
is our concern. We think there is enough scientific information
to support that conclusion.
Mr. Walden. Appreciate that. Thank you all. Thank you, Mr.
Chairman.
The Chairman. The gentleman's time has expired.
The gentlelady from California, Ms. Solis.
Ms. Solis. Thank you, Mr. Chairman.
A question for Mr. Stephenson. In your GAO report you
recommended that the Department of Homeland Security and the
Department of Agriculture assess fiscal impacts of climate
change. Why were those two just singled out? Are there any
other agencies we should be including?
Mr. Stephenson. Those are the managers of the two large
Federal Crop Insurance Corporation and the National Flood
Insurance program. That is why we directed our recommendations
to those agencies that manage those Federal programs.
Ms. Solis. Should we have perhaps some assistance from our
other Federal agencies like NOAA, as was mentioned earlier,
some of the other scientific agencies that could provide
additional support to these agencies that oversee our Federal
insurance plans?
Mr. Stephenson. I would think that would be--in
implementing our recommendations to study the implications, I
would expect that they would use all the Federal Government's
resources to come up with reports on how their programs might
be impacted. So, yes, I would agree with you.
Ms. Solis. I am also equally concerned, and this is more a
question for Mr. Kreidler regarding health, health care, and
the negative impacts that some of these disasters are having on
our population, whether it is respiratory, asthmatic. And have
we thought or have you and your State looked at combining work
from Health and Human Services? Is that something that you may
want to look at or we may want to look at?
Mr. Kreidler. We are in the process right now, an advisory
group that has been created in the State of Washington, looking
at all aspects and it includes--the Department of Health is a
part of that determination. Clearly, it has very significant
relevance.
I think the best example or perhaps the worst example is
what happened in Europe with the heat wave; and, you know,
depending on the numbers they use, 30,000, 40,000 people wound
up dying as a result of just heat. But there are other issues,
such as disease, that are going to be changed; and it needs to
be taken into account. And clearly we are looking at it from
the standpoint at the State level. I think it would be
important in much the same reasons--for the same reason that we
have a review, in having a commission take a look at all
aspects to add the questions of health and how they would be
impacted.
Ms. Solis. Mr. Nutter.
Mr. Nutter. Yes. If I could supplement that, we don't
represent health insurers or reinsurers, but I would refer you
to two groups if, going forward, you are going to have hearings
that focus on health. One is the Centers for Disease Control
has initiated a project looking at climate change and its
impact on health; and the second is the Center for Health and
the Global Environment, which is part of the Harvard Medical
School, has focused for some years on climate and health risks
associated with climate. They have excellent expertise and have
been at this for some time.
So both of those would be--I would encourage the committee
to consult with them.
Ms. Solis. Just an additional note, in my experience
visiting Mississippi and Louisiana after the flood, a
delegation went down, we saw that there were many, for example,
refineries and landfills that were actually heavily impacted
and, of course, contaminants affecting the population; and I
have yet to see the kind of so-called risk management or
assessment that needs to be done on not only the land but as
well as the population and the devastation that that will have
for future generations.
So that is something that I often think about when I look
at the shortage of health care facilities there and the impact
long lasting in terms of the contaminants that affected the
residents there during the flood.
Thank you.
The Chairman. The gentlelady's time has expired.
The Chair recognizes the gentleman from Oklahoma, Mr.
Sullivan.
Mr. Sullivan. Thank you, Mr. Chairman; and I want to thank
the panelists for being here today. Thank you, and I have a
question for all of you--well, different ones for different
ones.
Mr. Stephenson, first, just out of curiosity, are there any
other comparable programs to our flood insurance program or
crop insurance program in other countries? And are they taking
possible global warming events into account?
Mr. Stephenson. I am sure there are government-sponsored
programs in other countries. We did not, however, look at them
as part of our study. We were focused on the U.S. Federal
Government's insurance programs.
Mr. Sullivan. And also, sir, how much of the government
exposure on paying out claims is for the repeat claims? For
example, someone builds on a flood plain, gets wiped out, then
rebuilds only to get wiped out again. How can we work to
prevent these cases from repeatedly occurring?
Mr. Stephenson. Well, that came up earlier when we were
talking about building codes. If you have a federally backed
mortgage, you are required to build to the flood insurance
codes, but that doesn't exist in every community. So if there
was a way to strengthen that global Federal connection so that
building codes could be tied to insurance, that would be a good
thing.
Mr. Sullivan. And also when considering risks for natural
disaster damage, weather factors can be taken into account. For
example, the condition of local infrastructure such as levies
and dams taken into account, the State's ability to respond to
the disaster.
Mr. Stephenson. All those preventative measures are huge
when it comes to insurance payouts for extreme weather events.
Mr. Sullivan. And, Mr. Nutter, where do you believe the
Federal Government should be in regulating private insurers
when it comes to catastrophes or insurance against
catastrophes?
Mr. Nutter. I would suggest that the current system in
place is the one that Mr. Kreidler--Commissioner Kreidler
represents, and that is really a State-by-State system of
insurance regulation at this point. Certainly these events are
regionalized, many extreme weather events are regionalized,
hurricanes that is distinguished from tornadoes or earthquakes.
So at this point, other than the Federal insurance programs and
insurance programs you have, we are not promoting or think that
there is any particular role relating to the Federal Government
with respect to regulating insurance companies or insurance
rates, if I understand your question correctly.
Mr. Sullivan. And also, sir, do insurance companies have an
economic motivation to make the threat of climate change sound
more extreme and dire than it is? And does the creation of
extreme scenarios instill fear and thus create a way to
increase insurance premiums and, thus, the company's bottom
line?
Mr. Nutter. That is a fair question. But I would suggest
that the insurance industry in the Unites States has actually
taken a different tact. Its focus has really been on
mitigation. It focuses a lot on building codes. It lobbies for
improved building codes, and it is focused on research related
to building design and building materials to try and improve
the resistance of properties to damage by extreme weather
events.
The Institute For Business and Home Safety is an insurance-
industry-funded organization that does that, so I don't think
the industry in the United States really could be accused of
doing that. It really has focused more on the consequences of
extreme events, not the causes.
Mr. Sullivan. Thank you, sir.
And, Mr. Kreidler, given the predictions of large-scale
map-altering weather events that folks like the former Vice
President are predicting, would you suggest that the Federal
Government take over or expand its disaster insurance programs
or regulate insurance at the Federal level rather than allow
States to do it?
Mr. Kreidler. I would suggest that expansion would be in
order, but I would also probably even more so say that we need
reform of these systems so that they act as a coordinated
catastrophic program. There is plenty of focus on the local
communities from the standpoint of building codes and zoning
and the like, but there is a significant part that deals with
the infrastructure that exists from the standpoint of making
sure that the roads and the levies and all of the
infrastructure there is up to standard, and it is a clear
question that is deficient at the present time.
I think having a prospective type of catastrophic funding
would make a lot of sense; and integrating programs that we
currently have, including flood and I would go to say also
programs--or perils such as earthquake, should be also
incorporated so that we have a comprehensive approach to the
challenges that are in front of us.
Mr. Sullivan. Thank you, sir; and thank you, gentlemen.
I yield back.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentlelady from South Dakota, Ms.
Herseth Sandlin.
Ms. Herseth Sandlin. Thank you, Mr. Chairman. Thank you to
our witnesses today for their insightful testimony.
I do want to focus my questioning on the drought of the
western plains. These are a number of people I represent. And I
am curious, Mr. Stephenson, on page five of your report it is
noted the USDA took issue with several points made in the
report, even though they agreed with your recommendation to
look at the longer-term effect on the public programs through
the Federal Crop Insurance Corporation. Could you elaborate a
little bit on where USDA was taking issue with some of the
points in the GAO report?
Mr. Stephenson. I think they felt we were focusing more on
hurricanes which affect the flood insurance program than the
crop insurance program; and that is because the exposure for
that particular program is so huge, $1 trillion. But,
nevertheless, the IPCC also predicts that increased drought is
likely, which means 66 percent confidence that it will occur;
and that certainly will affect the crop insurance program.
And, again, they agreed with the recommendation to consider
the implications of climate change. However, when we testified
in the Senate, they wanted to see a specific report on how they
might do that, rather than just insurance.
Ms. Herseth Sandlin. I don't want to speculate on all of
the concerns USDA may have, but I do think that the focus on
hurricanes and when we look at the generalization that it is
more costly, but I think in part that may be driven by the
population density along the coasts and the private insurers as
well.
But when we are dealing with the western plains, did it
come up in your conversations, your analysis as it relates to
the FCIC and your discussions with USDA that, for example, on
page 11 of the report when it looks at weather-related losses
paid out, that that could very well have been much higher from
1999 through 2005 given the long-term drought in the western
plains, given the fact that there was either inadequate or no
insurance products available for rangeland pasture grass for
livestock producers versus what was being paid out for grain
producers affected in different parts of the country in ag
sectors affected by the drought?
Mr. Stephenson. We can get into that specifically, but I
think your conclusion is correct. It did focus more on grain
producers and traditional farming rather than ranching.
Ms. Herseth Sandlin. And I just want to point out that
there are a number of new pilot programs that are being tested
in certain parts of the western plains as it relates to
rainfall levels, vegetation cover to deal with the issue of
rangeland and grassy pastures. So, if anything, these numbers
could go up if indeed this isn't simply a cycle that we have
seen before, but even if it is the intensity of which seems to
be more severe, as Mr. Blumenauer was pointing out in light of
some of the record temperatures as well as the anecdotes of
some older people in the western plains who lived through the
1930s as well and comparing that to the drought of the last 6
or 7 years.
I think that that may be all the questions I have.
The GAO then, you didn't do any projections based on--I
mean, that is sort of what you are seeking USDA to do for the
FCIC projections, including these new pilot projects that may
increase participation.
Mr. Stephenson. No, that is correct. We looked at the IPCC
projections and sort of overlaid those in the Federal insurance
programs, understood the Federal Crop Insurance Program, for
example, was very retrospective, convinced ourselves that they
weren't doing very much prospective looking in. The past may
not be a good predictor of the future; and, therefore, we
recommended that they needed to study the issue in more detail
than we currently have.
Ms. Herseth Sandlin. Okay. Thank you, Mr. Chairman. That is
all I have.
The Chairman. Great. The gentlelady's time has expired.
The Chair recognizes the gentlelady from Michigan.
Mrs. Miller. Thank you very much, Mr. Chairman; and I think
it is appropriate we are talking about global warming. We could
use a little bit in this room. I don't know about the rest of
you, but I am freezing in here.
My question is going to just be about the National Flood
Insurance Program; and I am going to lay out for you some
statistics that we have gathered in Michigan and in our office
about what I think are huge inequities in that program as far
as premiums, claims, et cetera.
As you know, FEMA is currently in this process of remapping
the entire Nation, and they are going to be utilizing the much
higher technology that we now have available with digital
technology, et cetera, and allegedly all of this enhanced data
is going to be able to give the National Flood Insurance
Program a much more accurate picture about the risks that are
posed in various areas, certain areas and theoretically of a
more solid foundation on which to base their premiums.
However, I will say this. What we are finding is that, as a
result of this entire remapping process that they are going
through--and they are pretty much through. For instance, in
full transparency, we are talking about Michigan, because we
are really looking at this thing. But we are finding our
property owners are being forced to pay much, much higher
premiums; and I will just give you an example.
In regards to the proposal by FEMA for remapping in the
Great Lakes region, they are actually raising the base flood
elevation an additional 14 inches, which allegedly will
accurately reflect the risk of flooding. However,
unfortunately, they are using data that is about 20 years old,
which is reflective of a time when we had the highest lake
levels ever recorded in the Great Lakes basin. In fact, in Lake
St. Claire, which is a lake in between Lake Erie and Lake Huron
between the Detroit River and the St. Claire River, actually
during that same 20-year period we have experienced water
levels that have dropped three feet during that time and are
currently about five feet below what is the current flood
elevation.
During the last 30 years--and here is the numbers that we
have compiled. During the last 30 years, the residents of my
State have paid $120 million more in premiums for national
flood insurance to the National Flood Insurance Program than
they have received in claims, although the remapping plan, as I
mentioned, is even going to force more people in Michigan to
participate than they already do. They are mapping areas that
have never flooded ever and are forcing people into the
National Flood Insurance Program.
And I say that because we can compare it to what is
happening in the gulf coast as a result of some of the
hurricanes, Katrina, Rita, et cetera, where you have billions
of dollars being paid in insurance claims. These are to people,
of course, who are essentially--who have lived below sea level,
unlike what is happening in Michigan.
So if you look at a group of the 10 States which have
received actually $1.5 billion more in claims than they have
received in premiums--and this is the kicker, I would say--the
average premium in this group of States that are receiving
these high claims is $223. The average premium in the State of
Michigan is $260. So we are paying more on an average into the
National Flood Insurance Program than people who are living
below the sea level. And I will tell you one thing, in
Michigan, we look down at the water, we look down at the water,
and yet we are paying these high programs.
In fact, Mr. Kreidler, I have suggested to our State
insurance commissioner that Michigan should pull out of the
National Flood Insurance Program and completely self-insure. I
am not sure we are going to do that. That sounds a little
Draconian, I understand. But that is how concerned we are about
what we think we are doing. In other words, we feel that we are
subsidizing.
So I guess my question is, generally, what are your
thoughts about an imbalance like this? And do you think that
the National Flood Insurance Program is a viable program? Or is
it just administered politically, quite frankly?
Mr. Kreidler. Thank you. I think that the National Flood
Insurance Program has been long overdue ever since its creation
I think in 1968. It needs to have a real revamping. I think the
last reauthorization of the program was with the idea that that
is what the Congress was going to anticipate having a more
prolonged, thoughtful consideration of doing and reviewing just
exactly how it functions and what it charges and what it is
based on. We are all to be part of that review. From my
standpoint, I think that that is long overdue.
Just looking at the program, it is a Federal program. I
think it is a program that should be incorporated, quite
frankly, into all of insurance and not set out as a separate
program; and I think that would help in many respects to not
address necessarily the cost but certainly from the standpoint
of being able to make sure it worked much more efficiently.
The Chairman. The gentlelady's time has expired.
The chair recognizes the gentleman from California, Mr.
McNerney.
Mr. McNerney. Thank you, Mr. Chairman.
Mr. Chairman, without objection, I ask that the IPCC
summary for policymakers issued in February of 2000 be included
in the record. Specifically, the statement on page 6 that there
is observational evidence for increase of intense tropical
cyclone activity in the North Atlantic since about 1970,
correlated with increases in tropical sea surface temperatures,
for the record.
The Chairman. Without objection, it will be included.
[The information follows on page 89:]
Mr. McNerney. Insurers, more than just about any group,
base their decisions on the bottom line and on rigorous
probability calculations. Because of this, I feel that the
insurance industry is an indication of where we are going with
global warming and risk issues associated with that.
Having said that, I would like to point out the risk in my
home State of California. Some 23 million people depend on a
set of levees in the Sacramento area and not only for their
clean water. But not only that, the cities of Sacramento and
Stockton have levees that which, if failed, will impact people
in urban areas directly. Rising seas and increasing storm
intensity, both a consequence of global warming, pose serious
threats to our levees.
The reason I bring this up is because many private insurers
have either stopped insuring or writing new policies as a
result of the Katrina events. Mr. Nutter, can we expect to see
this in California? Or can we wait until the catastrophic
events?
Mr. Nutter. That is a difficult question. I can speak for
the reinsurance industry.
The global reinsurance industry wants to write catastrophe
business as part of its risk portfolio. After Hurricane
Katrina, $32 billion of new capital came into the reinsurance
business to write business in the gulf coast, in Florida, the
east coast; and, frankly, they would think more of California
because of its earthquake risk. So from the reinsurance
perspective, this is, in fact, an insurable risk that the
business wants to write.
It is quite clear that a number of insurance companies have
had to reassess the risk exposure they have to extreme weather
events and have either sought to raise prices to reflect that
risk or to non-renew or cancel policies in order to bring it in
line with their capital requirements from the rating agencies.
I can't speak specifically to Sacramento. I apologize for
that. But it is a fair question.
Mr. McNerney. Well, in the 2005-2006 winter we came within
about 2 inches of water overrunning the levees in Sacramento.
So there is a significant risk, and it is ongoing.
Mr. Stephenson, you mentioned the 66 percent chance of
increased weather-related damages. I guess I would like to know
when we can see the direct impact of that assessment on our
insurance policy rates nationwide.
Mr. Stephenson. You are asking the wrong person. You should
ask the insurers that. I was just quoting from the IPCC study
which you just entered for the record; and that is their
statistic, basically.
Mr. Nutter. There is no question that, following the 2004-
2005 storms, that the risk modelers that do assess this risk
and advise insurers and government programs about the risk
exposure that it caused an increase in risk premiums,
particularly in high-risk areas. There was also a reassessment
of the construction costs associated with rebuilding. So I
would say that the movement toward more risk-based premiums is
really already occurring as a result of the wake-up call that
the 2004-2005 storms reflected.
Mr. McNerney. One last question, if I have time. Mr.
Kreidler, are insurance companies actively involved in
influencing national policy in this country toward global
warming?
Mr. Kreidler. In my personal opinion, we have seen too
little of it from the standpoint of the American insurance
industry. It has been much more of the European insurers as
opposed to--and the reinsurers, which tend to be international
by their very characteristics, involved in pressuring for and
pressing for national policy changes.
I think that when it comes to what we can do with the
insurance companies in America, one would be, as a part of a
comprehensive study, to look at how they can reserve for future
losses so they don't try to build too much of it into their
immediate rates they are going to be charging following a
particular event or become too responsive to particular risks
as they may envision them, such as the levees breaking in the
Sacramento River. I think you can do that and lessen the kind
of cyclical nature of what you see in rates but also the
underwriting patterns that take place by the insurance
companies following a significant catastrophic loss or events.
Mr. Nutter. If I might supplement that, Swiss Reinsurance
is a licensed company here in the United States. It is based in
Switzerland. They have been proactive in promoting more
aggressive U.S. policy with respect to emissions.
I would also note that AIG, obviously a major U.S.-based
international insurer, in April, 2007, joined as the first
insurer as part of the U.S. Climate Action Partnership. So
there is some sign that the industry is becoming more engaged
in the debate. The industry as a whole, as suggested by Mr.
Kreidler, has been less involved.
Mr. McNerney. Well, thank you for your answers and thanks
for coming in today to give your presentations.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Arizona.
Mr. Shadegg. Thank you, Mr. Chairman.
I want to thank all of our witnesses. I don't believe I
have any questions for them.
I want to use this time to put into the record some facts
regarding the last hearing and to address an issue which I
believe could impeach the credibility of this entire process.
At the last hearing, which was on dangerous climate change,
the majority called a witness by the name of Dr. Judith Curry.
Dr. Curry had submitted written testimony, and on page one of
that testimony she reproduced two paragraphs out of the IPCC
summary for policymakers that was just placed into the
evidence. Interestingly, she put an ellipsis in between the two
paragraphs, making it appear--or in the middle of the long
paragraph, making it appear that she had left out at least a
sentence, not making it appear that there were two separate
paragraphs.
I asked Dr. Curry why she had left out some material,
because my staff checked the IPCC report and looked at what the
omitted material was. To my surprise, Dr. Curry said--denied.
She said she had not left out any language from the IPCC
report.
I was stunned at that. It is not often that a witness
appears before a congressional committee and fundamentally
lies. And so I sought to ask Ms. Curry--I pointed out to Ms.
Curry that she, in fact, had left the sentence out. She
professed not to know that. I directed her to the sentence, and
I was in the process of asking her to read that sentence
because I thought it was an extremely important sentence, at
which point my time was gaveled to a stop.
The essence of Dr. Curry's testimony was that there are an
increased number of hurricanes and that they will do, as a
result of our serious consequence, global warming.
Interestingly, the sentence that Dr. Curry had left out, which
I would like to put into the record now without being
interrupted, is a sentence which fundamentally undercut her
entire thesis; and that is the sentence which appears at page
eight of page 18 of the summary which has just been placed in
the record by my colleague on the other side. That sentence
says a point that has been re-emphasized here, which is that
there is no clear trend in the annual numbers of tropical
cyclones. There is no clear trend.
She had previously stated in the report that the risk of
increased hurricane activity is arguably the issue of greatest
concern to the U.S. public. I think it is very, very serious
when a witness appears before this committee and intentionally
omits a sentence which impeaches or undercuts their testimony.
I think it is much more severe when that witness denies having
done that and isn't familiar enough with their work to know
that they have left that sentence out, fundamentally lying to
this committee because witnesses before this committee are
largely under oath.
I wanted to point out, Mr. Chairman, that a further
incident occurred that I thought was more troubling and a
number of people raised with me after the incident. And that is
that, as I was asking and pointing out to this witness that she
had left out the sentence which impeached or weakened her own
testimony, the Chair gaveled me to a stop and didn't allow me
to continue to make that point.
In that hearing earlier I had pointed out to the chairman
that there, in fact, was no clock allowing members of this
panel to see how much time they had left. Now I presume the
chairman of this committee would never intentionally gavel to a
silence a member just because that member was making a point
that was damaging to that chairman's point of view; and I am
certain, Mr. Chairman, that you would never intentionally do
that.
But, nonetheless, when I left here, a number of people came
to me and said that they were shocked that Dr. Clark had
omitted the sentence. They expressed to me that they were even
more shocked that Dr. Clark had denied omitting the sentence;
and a number of them, Mr. Chairman, said to me they felt that
it was completely inappropriate for you to gavel me down right
when I was pointing out that she had left out the sentence that
impeached her or undermined her testimony and that when I tried
to get that sentence into the record that was the point at
which the gavel struck and I was not allowed to complete my
point.
Now, Mr. Chairman, I understand it is difficult to manage
time here, and I am going to assume that that was an
unintentional act on your part, but certainly if there were an
appearance that this committee was trying to silence members
who were simply making a factual point--and I would like to put
Dr. Kreidler's testimony back into the record and the IPCC
report with the sentence that does undermine her testimony into
the record of this hearing. I am certain if people thought that
was being done intentionally here, it would undermine the
entire purpose of these hearings.
Because I hope the chairman agrees with me that we should
have a full and honest debate of all of the issues before this
committee, and that if a witness does in fact either omit a
sentence which damages or weakens their argument and, more
importantly, that if a witness denies that they did so when it
is clear they did in fact do so, this committee would want to
know that.
And, with that, Mr. Chairman I yield back.
The Chairman. Great. The gentleman's time has expired.
And I might note that the gentleman's time, that is, the 5
minutes that he is allocated, had just expired as he was making
his point last week in that hearing. And in both instances the
gentleman had not appeared to make an opening statement but
rather only had 5 minutes of questions and at the conclusion of
his 5 minutes then was posing questions which I then allowed to
go on for an additional minute, although that was in excess of
the time that had been allocated for the gentleman.
At that time, if the gentleman recollects, we had a similar
situation where there was a roll call pending. There were
members waiting to ask their questions, as there are right now.
I was trying to accommodate the other members, and it was in no
way intended to have any adverse effect upon the gentleman but,
rather, to accommodate the other members.
I will note, however, that Ms. Curry did in fact put an
ellipsis in her statement. In other words, she made it clear
with that ellipsis that there was missing language. She wasn't
trying to misrepresent that there had been no gap in her
testimony.
And, similarly, the sentence that you are referring to and
have raised does not undermine in any way Dr. Curry's testimony
that the intensity of hurricanes is increasing. The missing
sentence was about the number of hurricanes, a matter of
continuing scientific debate. But the missing language did not
in fact undermine her central argument, which was about
intensity.
I just wanted to say to the gentleman, in no way was I
trying to cut off your statement. All of your time had already
expired, and I had given you extra time. I was trying to
accommodate, as I am trying to do right now, Mr. Cleaver. But
even this conversation is probably going to necessitate us
having to adjourn and Mr. Cleaver having to come back after
these roll calls. I was trying to get him in before this point.
But this conversation again is beginning at the end of your 5
minutes, rather than at a point that would have consumed your 5
minutes.
I will be glad to yield to the gentleman.
Mr. Shadegg. We will discuss this.
First of all, my entire comments today were devoted to this
point. I didn't--my comment saying I was unhappy with how I was
treated did not begin at the end. It was the entire essence of
it. Besides which her testimony says, ``increased hurricane
activity,'' not intensity, activity which can include the
number of hurricanes. So it does impeach her statement.
And all I said, as I gave the gentleman the benefit of the
doubt, which was I assumed he would not have intentionally cut
me off. But the appearance was certainly there, given that it
was precisely at that point the gentleman cut me off.
The Chairman. And, again, I don't mean to cut you off right
now, although--for the purposes of recognizing the gentleman
from Missouri so that he can ask his questions before we go
over for the roll call and not necessitate him having to return
and spend another half hour of his time, I apologize to the
gentleman from Missouri.
Mr. Cleaver. Thank you. This is what happened last time.
The Chairman. Exactly. Okay. So I apologize to the
gentleman from Missouri.
Again, I assure the gentleman from Arizona I was only
trying to accomplish that for the purpose then, as we did a
week ago, as I am trying to accomplish here, and I apologize
again, and at this point----
Mr. Cleaver. The gentleman from Arizona may not have
recalled that I was waiting at that hearing as well.
My concern is that my son had just graduated from Dillard
University and was staying in New Orleans to do----
The Chairman. If the gentleman would yield, I think there
is only 2 minutes left on the House floor for roll call. I
apologize to the gentleman. You can remain here as long as you
would like or----
Mr. Cleaver. No, I think I had better go.
The Chairman. The committee will adjourn, and we will
return in a few minutes.
[Recess.]
The Chairman. The committee will reassemble, and we
apologize to you. And the Chair will, when he is ready to go,
recognize the gentleman from Washington State, Mr. Inslee, for
his questions.
Mr. Inslee. Thank you. Thanks for being here. I appreciate
Mr. Kreidler's comments about the non-hurricane situation
actually causing us some grief, too.
I spent Election Day last November stacking sandbags out on
the river in Snohomish County with the chain gang, the
Snohomish County Jail chain gang. And I was standing in the mud
throwing sandbags, and I was wondering, is this an upfront,
personal view of global warming? Well, we can't tell for sure
because you can't identify one storm to global warming, but the
science is indicative in the Northwest. We will have more
frequent, very severe rain events, more frequent weather wind
patterns; and 2 weeks later we had a power out for 4 or 5 days.
So I appreciate you bringing it to our attention it is not
just the massive hurricanes that has an impact in our personal
lives, and also I appreciate you coming all this way to tell
the story of economic damage the United States can face due to
inaction. You know, many of us think we should take some
action, some prudent, reasonable, common-sense action on global
climate change; and other people say, well, that will hurt our
economy. And it is like they forget that inaction will hurt our
economy.
You gentlemen have talked about significant billions and
billions of dollar losses we will be suffering if we take no
action to deal with it, so I think it is very important you are
here, and it is a very important hearing and a very important
message, and I appreciate you coming all this way.
Mr. Stephenson, I wonder if you can--we have a situation
where the U.S. Congress has dithered and basically done nothing
to adapt to climate change. It has adopted the position of the
ostrich today as far as climate change; and yet the business
community, at least in the private insurance markets, if I
understand your testimony correctly, is anticipating the
damages and reacting to the damages and started building it
into their business models to really get ready for this, what--
the damage that is going to be coming.
Could you try to quantify in dollars at all how much the
private markets have moved in response to the oncoming damage
of climate change?
Mr. Stephenson. The private markets or the Federal?
Mr. Inslee. Well, we will just say both. Let's lump them
together.
Mr. Stephenson. The whole point of our report is that the
private markets are moving out aggressively to incorporate the
impact of climate change on their business, and we don't see
similar movement in the Federal insurance program. That is kind
of the heart of our report and why we recommended that they
need to do so.
Mr. Inslee. Can you put any dollars on that? Is it millions
or billions the people are investing based on the belief that
climate change is going to increase damage in the United
States?
Mr. Stephenson. Well, we are more concerned with the
exposure in the future and that there be repeats of 2005, where
the National Flood Insurance Program had to borrow $18.5
billion from the Treasury. It is that sort of thing. If we have
too many years like that, although the program is not supposed
to be completely actuarial sound, it needs to do a better job
than that. So that is the concern.
Mr. Inslee. Mr. Nutter.
Mr. Nutter. Let me cite from a report that--it is not our
report. The Association of British Insurers released a report
just last year, and they had the following comment in there
which I think is reflective of your question.
Just looking at climate change and holding everything else
steady, so not taking into consideration increased populations
at risk or properties, that sort of thing, they had the
following comment: Higher capital costs for insurance
companies, combined with greater annual losses from wind storms
alone, could result in premium increases of around 60 percent
in those markets, meaning Japan, the U.K. and the U.S.
If that helps you with understanding. The point is, it is
considerable.
Mr. Inslee. So 60 percent, is that on the reinsurance
level, the retail level? Is that to the homeowner, is that to
the reinsurance market or both?
Mr. Nutter. The ABI report would be the insurance--the
insurance level.
Mr. Inslee. Is it fair to say that there would be
significant costs incurred by the consumer eventually as that
works its way down to the market, I assume?
Mr. Nutter. Well, absolutely. And, as I said, this doesn't
even reflect increased construction costs or increased building
in these areas. So there is no question the increased severity,
frequency of storms is going to drive insurance costs higher.
Mr. Inslee. So I am trying to put this--it is important to
look at it where people really live, their homeowner's premium.
You know you could--sitting here, I would say there is a 60
percent--it is probably going to end up as a 60 percent
increase to consumers at some point in that order of magnitude.
Is that a fair----
Mr. Nutter. That is a fair interpretation of the
Association of British Insurers report, yes.
Mr. Inslee. I want to make sure I understand that report. I
understand that report--the Flood Insurers Association
concluded increased wind-related losses from extreme U.S.
hurricanes by 2080 would be increased by about three-quarters,
the equivalent of two to three hurricane Andrews annually, is
that correct?
Mr. Nutter. That is correct.
Mr. Inslee. And I want to make sure that that assessment of
future damage was not taking into account increased property
values or increased population or the fact that we have more
people living on the coastline. That is just simply due to the
change in the climate, is that my understanding?
Mr. Nutter. That is also correct.
Mr. Inslee. So, as I understand, they also said there would
be increased wind-related losses from increased Japanese
typhoons by about two-thirds. The increase alone would be more
than twice the cost of the 2004 season, twice the cost of the
last hundred years. That doesn't have anything to do with more
people moving to Tokyo. It is just due to the fact of the wind
blowing harder.
Mr. Nutter. Their study just reflected the effect of
climate change on those costs.
Mr. Inslee. And I saw something that was kind of an eye-
opener. They also assumed there would be an increase of
flooding in the United Kingdom almost 15-fold. We in the
Northwest I think have already experienced this in our local
regional models, predict it will have increased--significant
increased flooding. I am not sure 15-fold, but that is their
assessment, right?
Mr. Nutter. That is U.K., and that is pretty dramatic. I
agree.
Mr. Inslee. So, as I understand again, I think I heard you
say that there had been an increase in average weather-related
catastrophes since the 1970s at about 2 percent a year,
independent of an increased wealth of property or people moving
to the coastline but simply due to weather-related losses. Is
that the accurate assessment?
Mr. Nutter. That is correct. And that came from Risk
Management Solutions, which is one of these catastrophe
modeling firms that I have referenced in the testimony.
Mr. Inslee. So 2 percent per year, we are talking about
over 75 percent increase of losses related just to increased
weather events, not to the fact that more people are living on
the coastline in nice houses?
Mr. Nutter. That is correct.
Now they did not attribute all that to climate change, but
they did attribute that to an increased incidence of extreme
weather events, including the contribution climate change made
to that.
Mr. Inslee. Okay. Mr. Stephenson, you found this dramatic
difference between what the private markets are doing, namely,
they are responding to this and the government carriers are
not. Now I have actually seen, I think, a metaphor for that;
and the American businesses are responding. General Electric is
making huge investments in clean energy. DuPont is doing the
same thing. But the U.S. Congress is dithering around doing
nothing, at least to now. Do you have any explanation as to why
the government has not been as responsive as to private
markets? Just very briefly.
Mr. Stephenson. No. I mean they are not motivated by profit
like the private sector is. The Treasury can bail them out if
they make a mistake. All those things lead to a little
inactivity, in our opinion, on embracing climate change and
determining the impact on their prospective jobs and
businesses.
Mr. Inslee. We will try to remedy that. Thank you.
The Chairman. The gentleman's time has expired.
The gentleman from Missouri, Mr. Cleaver.
Mr. Cleaver. Thank you, Mr. Chairman. Thank you for
bringing such a high quality of witnesses to this committee and
also for your patience. I apologize to you for your delay. Your
time is valuable, and you have something to say, and some of us
just have to say something. So I appreciate your presence.
As I began to say, my son has just graduated from Dillard
University, was in New Orleans to do a Shakespeare play at
Tulane when Katrina and Rita hit. The one thing that separated
my son from the people that the world saw at the Dome was, in
spite of the fact he had to spend one night at the Wal-Mart
parking lot, he had a car. Only one out of six residents of New
Orleans owns a car, and it gives you some example of the
poverty of that so-called glitzy city.
If you look at the IPCC report and statements or research
by meteorological experts, you have got to come to the
conclusion that, with higher global temperatures, we are going
to have more floods, more extreme weather. If this happens, the
people most vulnerable are the low-income people like those who
were left in New Orleans. Is there any suggestion that you
might have for ways in which we could provide aid to the lower-
income communities in terms of insurance coverage? Because they
are going to end up being the most vulnerable. No matter what
happens, they are going to get hurt the worst.
Mr. Kreidler.
Mr. Kreidler. I think that one of the things that clearly
can be done is, if you develop a change in how you develop a
policy or how you deal with catastrophic events and you can
build into how you deal with the kind of insurance that you are
requiring homeowners to have, it becomes easier if it is
constructed right to be able to offer subsidies so that you
don't have gaps of people that are left without insurance.
That clearly presents a real challenge for insurers to come
in when they deal with different building codes, different
types of--some houses are insured and some of them aren't. In a
patchwork, it makes it much more complex and difficult to have
a policy as to how you are going to do your insurance in that
area. If you have all of the houses insured, everybody has
homeowners' insurance, then it is easier to offer a subsidy to
those programs where individuals need financial assistance and
you can do it thoughtfully, rather than waiting and coming in
after a major catastrophe where you essentially are spending
money as we have in New Orleans.
Mr. Cleaver. Yes, Mr. Nutter.
Mr. Nutter. It is a very good question. Several of the
States that we deal with in looking at response to concerns
about insurance costs are trying to address that very thing. I
would encourage you to talk to the people in South Carolina,
the insurance commissioner and the government.
I was just in Massachusetts yesterday, met with the State
Senate president there. A couple things they are looking at are
some sort of a tax credit for people that is needs-based or
income-based with respect to their insurance premiums,
consideration about allowing people--I think a Health Savings
Account or an IRA to set aside in a pre-funded way costs
related to their recovery. They are also considering tax
credits for people who buy materials to either retrofit their
homes or when they have to repair their homes.
So I think the States are actually looking at a variety of
creative ways and are very focused on the questions you raised.
Mr. Cleaver. How do you feel about--at least it is in a
discussions phase in the Financial Services Committee which I
sit on--this all-peril insurance which is designed similar to
the Federal flood insurance as we approach more disasters based
on the data available?
Mr. Nutter. Yeah. I know Commissioner Kreidler will want to
speak to this as well.
From the insurance industry's perspective--and it has to be
concerned about the costs associated with doing that. If you
are going to an all-perils policy and you are going to add
coverage to these policies that perhaps people don't choose to
have now or don't want to have now, you are likely to increase
their premiums in areas. And it would just be important in
doing that to make sure they are truly risk based, the people
are paying for the risks they have taken, whether it is
earthquake or hurricane or flood or whatever it would be. But
there would be some concern in the industry about expanding the
risk portfolio of individual companies as well as the
consumers.
Mr. Cleaver. Thank you.
Mr. Kreidler. I personally think that moving toward an all-
perils policy, particularly for homeowners, for small business,
the people who don't have the sophistication and the skills to
be able to deal with--well, flood insurance program which may
say we are just going to come in and pay this part of it, the
rest of you hadn't, figure it out.
If it is integrated, the primary insurance company
effectively has to come in, provide the coverage, and then they
do the negotiation with, let's say, the National Flood
Insurance Program. It would make a lot of sense, and that would
be the kind of integration I think that we should see in our
insurance.
Mr. Cleaver. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired.
Let me ask a couple of other questions. I know Mr. Hall
might come back, and I have asked about Mrs. Blackburn, and
there is an indication she might not come back. So I will just
keep the hearing going a little bit because of the roll call
interruption.
Mr. Stephenson, the GAO notes in its report that, while
claims from weather-related losses varied significantly over
the last 25 years, they have generally increased during this
period. Isn't it very possible if this trend continues that we
could see losses during the next 25 years which exceed the $320
billion insured losses that we have seen over the last 25
years?
Mr. Stephenson. Well, again, that is the fear. I mean, a
lot of those increased claims are due to increased property
values, more people moving towards coastal areas and areas in
danger of severe weather events. But, nevertheless, that also
means that those Federal insurance programs have greater
exposure, and that is the concern, that the predictions in the
future need to be accurate. Otherwise, the payouts will far
exceed the premiums.
The Chairman. Have you noted any changes even in the way
the insurance industry, for example, looks at the ski industry
in terms of the altitude of these ski lodges and re-examining
how much it should insure against in terms of loss for that ski
lodge if there is no snow that winter? Do any of you have any
observations of that one industry, for example? Or other
industries that are changing their views of business prospects
because of weather?
Mr. Nutter. One of the curious byproducts of these kinds of
things is that the financial markets are often very creative.
There are often weather derivatives that companies do buy. It
is pretty prominent in the energy industry but in recreational
industries as well to buy a derivative that effectively
protects against the sort of business interruption that you are
talking about. So there is a market, curiously enough, for the
downside of climate change; and that is the unexpected things
that can happen.
The Chairman. And is the creation of this new derivative a
relatively new phenomenon?
Mr. Nutter. Relatively new. I would say in the last 10 or
12 years.
The Chairman. And is it related to the change in weather
and the severity of these storms?
Mr. Nutter. It is certainly related to the willingness of
the insurance market to insure certain things but not to insure
other things. It doesn't tend to fit the traditional business
model of insurance, so financial markets with financial
products are creative.
We cite another example. Catastrophe bonds, which are
pretty esoteric products, nearly doubled in issuance in 2006
following Hurricane Katrina as insurers were looking for ways
to lay off risk to reinsurance market but also to the capital
markets. It was something like $5 billion of catastrophe bonds
issued, another way of protecting against----
The Chairman. Which was an increase over what amount.
Mr. Nutter. It was about that--there were $2\1/2\ billion
in the preceding year, so it doubled.
The Chairman. It doubled in 1 year?
Mr. Nutter. In 1 year.
The Chairman. And that is unprecedented?
Mr. Nutter. That is unprecedented, yeah. There are probably
$10 billion of outstanding obligations for catastrophe bonds.
The Chairman. And what is the commentary that accompanied
that change in that area? What were the industry leaders saying
as to why they needed to do that?
Mr. Nutter. Well, in some cases it is a function of the
dynamics between the reinsurance market that I represent and
the capital markets looking for a deeper pool of capital to lay
off risk. Reinsurers, just like insurers, have a risk appetite,
and when that is saturated, the question is what more can you
do to address client needs? So the capital markets become
another vehicle for doing that. The weather derivatives market
is somewhat independent of the insurance market, but the
catastrophe bond market is very much integrated with the
reinsurance market as supplemental capacity.
The Chairman. Interesting.
Mr. Kreidler.
Mr. Kreidler. Typically these types of instruments deal
with commercial types of insurance, which are largely
deregulated at the State level, and not infrequently will also
involve the surplus lines market, like Lloyd's of London and
the like, where you can always buy it. But what we have seen is
that the price of insurance, particularly for let us say the
ski resorts are finding that they can always find availability.
The affordability is increasingly becoming much more difficult
for these lodges, and that obviously makes it more difficult to
get investment when you have problems of being able to secure
the risk that is involved with that investment.
The Chairman. So you are saying that for the ski industry
in some instances, that increasingly the affordability of the
insurance policy is now outweighing the profitability of the
operation as a whole for the ski business?
Mr. Kreidler. Clearly there are indications that that is,
in fact, what is taking place. We have seen in Europe in the
Alps; we can certainly see it in the State of Washington with
the Cascades and the problems we are witnessing right now with
the snowpack and the way it comes.
The Chairman. Can you tell us what is happening in the
Alps, to your knowledge?
Mr. Kreidler. I have to admit, Mr. Chairman, my knowledge
there is quite limited, except to say that, in fact, that I
have read that the availability of that kind of insurance is
becoming much more difficult to secure.
The Chairman. And it is related to the fact that the snow
is no longer as frequent or as deep or predictable, and as a
result the insurance premiums have to reflect that?
Mr. Kreidler. Exactly.
The Chairman. Let us do this. We thank you. I have one
final question, and then I am going to ask each of you to give
us kind of your summary statement as to what you want us to
remember from this hearing, and we appreciate your testimony.
Impacts from severe weather on homes and property are the
most obvious impacts of global warming, but there are others
that affect the insurance industry. Congressman Kreidler, in
your written testimony you mentioned some of the public health
impacts from severe weather. What are the economic
repercussions from these public health impacts from global
warming, and do you expect to see them grow in the future?
Mr. Kreidler. Mr. Chairman, I do anticipate that there are
going to be increasing health-related challenges. We witnessed
that, as I had mentioned earlier, with the statistics on the
heat wave when it hit Europe, and some 30 to 40,000 people who
wound up dying as a result of that. That is a very direct
impact that we see of health being impacted.
But we also see it from the standpoint of diseases that are
going to--much like the changes we see in weather from the
standpoint of drought and rain, that you are going to see
diseases that have been identified more with much more wet,
warm climates moving more to the north. And as that takes
place, from a public health aspect it is going to represent
some real challenges for us.
The Chairman. Okay. Great. Any of the others of you who
wish to comment on that health-related issue or anything that
is related to it?
Mr. Nutter. If I could just relate to what I said to
Representative Solis earlier, and that is that the Centers for
Disease Control has initiated a study looking at climate risk
and health. The Center for Health and Global Environment is a
Harvard Medical School-based organization that focuses on
climate change and health risk. I would strongly encourage the
committee to at least consult, if not call as witnesses, people
from there to talk about it. They are real experts in the
field.
The Chairman. We are planning on doing that, and, in fact,
one of our witnesses last week actually wrote the health
section for the IPCC report. But we have invited those Harvard
experts led by Dr. Epstein to come in and testify before us,
which is our intention in the next several weeks.
So that concludes questions from the subcommittee. Now we
are going to turn to summary statements from each of the
witnesses. We will begin with you, Mr. Stephenson. What do you
want this select committee to remember on this question of
insurance as we are going forward and making recommendations on
legislation this year?
Mr. Stephenson. Based solely on this work, we are concerned
about the Federal insurance program. So as I mentioned, we
testified in the Senate a couple of weeks ago. They agreed to
hold the managers' of those Federal insurance programs feet to
the fire, and they asked them to submit a specific report on
how they intended to implement our recommendations. We will
help you monitor their responsiveness to that report.
In addition, the Climate Change Science Program is past due
in reporting out its next assessment to the Federal Government,
the Climate Change Science Program, that is due in 2008. And we
would like you to keep monitoring and make sure that comes out
and see its compatibility with the IPCC assessments.
The Chairman. Great.
Congressman Kreidler.
Mr. Kreidler. Thank you, Mr. Chairman.
Let me say that I think that this is a very complex
interrelationship of insurance and how we can impact it, both
from the standpoint of tax policy to investment strategies that
really require the kind of thoughtful consideration that a
commission, national commission, with the right questions posed
to it are going to enable us to get at all the complexities
that are involved here from the standpoint of the Federal
Government, of certainly the National Flood Insurance Program,
but at the local level from the standpoint of land use and
building codes, a national policy by the Federal Government on
greenhouse gases being integral to this. All of this fits
together, and insurance is such an incredibly important,
sensitive part about investment and economic development that
if you don't take it all into account, you are not going to
make sure that insurance is there, affordable and available for
people and the economic activity so critical to this country.
The Chairman. Thank you.
And Mr. Nutter.
Mr. Nutter. Let me conclude where you started. I do think
that insurance is the canary in a coal mine in these areas. The
business model for insurance largely has been to take
historical data, look backwards and trend it forward. The
industry is often characterized as if you were driving a car,
it would be like driving it by looking in the rear-view mirror.
That is not the case with respect to a change in climate where
the industry needs to look forward.
The Congress has been excellent in supporting sound
research in this area. There are obviously questions that are
still open through the National Science Foundation, through
NOAA, through NASA. It is the kind of thing that does help the
industry understand the risk and assess it.
The Chairman. Thank you, Mr. Nutter.
And we thank each of you. This is very, very helpful. And I
think it helps put in perspective how the private sector is
adjusting here to the changes in weather patterns across the
planet, and your testimony has been invaluable. We thank you.
And I think, unfortunately, because of the roll calls,
there are a couple of Members who are not going to be able to
return in order to ask their questions. But that said, I think
it was a very productive hearing, and this hearing is now
adjourned. Thank you.
[Whereupon, at 12 p.m., the committee was adjourned.]
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