[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

                              ----------                              
                                                                   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

                              ----------                              


                         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:]
    [GRAPHIC] [TIFF OMITTED] 57966A.001
    
    [GRAPHIC] [TIFF OMITTED] 57966A.002
    
    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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