    [Senate Hearing 118-63]
    [From the U.S. Government Publishing Office]

                                                         S. Hrg. 118-63

                          RISKY BUSINESS: HOW CLIMATE CHANGE IS
                                CHANGING INSURANCE MARKETS

    =======================================================================

                                    HEARING

                                   BEFORE THE

                            COMMITTEE ON THE BUDGET
                              UNITED STATES SENATE

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 March 22, 2023

                                   __________

               Printed for the use of the Committee on the Budget

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                www.govinfo.gov

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    53-107                       WASHINGTON : 2023

    -----------------------------------------------------------------------------------

                            COMMITTEE ON THE BUDGET

                   SHELDON WHITEHOUSE, Rhode Island, Chairman
    PATTY MURRAY, Washington             CHARLES E. GRASSLEY, Iowa
    RON WYDEN, Oregon                    MIKE CRAPO, Idaho
    DEBBIE STABENOW, Michigan            LINDSEY O. GRAHAM, South Carolina
    BERNARD SANDERS, Vermont             RON JOHNSON, Wisconsin
    MARK R. WARNER, Virginia             MITT ROMNEY, Utah
    JEFF MERKLEY, Oregon                 ROGER MARSHALL, Kansas
    TIM KAINE, Virginia                  MIKE BRAUN, Indiana
    CHRIS VAN HOLLEN, Maryland           JOHN KENNEDY, Louisiana
    BEN RAY LUJAN, New Mexico            RICK SCOTT, Florida
    ALEX PADILLA, California             MIKE LEE, Utah

                       Dan Dudis, Majority Staff Director
            Kolan Davis, Republican Staff Director and Chief Counsel
                       Mallory B. Nersesian, Chief Clerk
                      Alexander C. Scioscia, Hearing Clerk

                                C O N T E N T S

                                  ----------

                           WEDNESDAY, MARCH 22, 2023
                    OPENING STATEMENTS BY COMMITTEE MEMBERS

                                                                       Page
    Senator Sheldon Whitehouse, Chairman.............................     1
        Prepared Statement...........................................    33
    Senator Charles E. Grassley, Ranking Member......................     3
        Prepared Statement...........................................    35

                        STATEMENTS BY COMMITTEE MEMBERS

    Senator Ron Johnson..............................................    16
    Senator Chris Van Hollen.........................................    18
    Senator Alex Padilla.............................................    21
    Senator Mike Braun...............................................    23

                                   WITNESSES

    Mr. Eric Andersen, President, Aon................................     5
        Prepared Statement...........................................    37
    Ms. Nancy Watkins, Principal & Consulting Actuary, Milliman......     7
        Prepared Statement...........................................   161
    Dr. Benjamin Keys, Professor of Real Estate, Wharton School,
      University of Pennsylvania.....................................     9
        Prepared Statement...........................................   164
    Mr. Jerry Theodorou, Director, Finance, Insurance, and Trade, R
      Street Institute...............................................    11
        Prepared Statement...........................................   172
    Dr. Judith Curry, President and Co-founder, Climate Forecast
      Applications Network, Professor Emeritus and Former Chair of
      the School of Earth and Atmospheric Sciences, Georgia Institute
      of Technology..................................................    12
        Prepared Statement...........................................   180

                                    APPENDIX

    Responses to post-hearing questions for the Record
        Mr. Andersen.................................................   197
        Ms. Watkins..................................................   199
        Dr. Curry....................................................   201
    Charts submitted by Chairman Sheldon Whitehouse..................   206
    Document submitted to the Record by Chairman Sheldon Whitehouse..   209

        RISKY BUSINESS: HOW CLIMATE CHANGE IS CHANGING INSURANCE MARKETS

                                  ----------

                           WEDNESDAY, MARCH 22, 2023

                                               Committee on the Budget,
                                                           U.S. Senate,
                                                        Washington, DC.
        The hearing was convened, pursuant to notice, at 10:00
    a.m., in the Dirksen Senate Office Building, Hon. Sheldon
    Whitehouse, Chairman of the Committee, presiding.
        Present: Senators Whitehouse, Van Hollen, Padilla,
    Grassley, Crapo, Johnson, Braun, and R. Scott.
        Also present: Democratic staff: Dan Dudis, Majority Staff
    Director; Matthew Bolden, Climate Policy Advisor.
        Republican staff: Matthew Giroux, Deputy Staff Director;
    Chris Conlin, Deputy Staff Director; Krisann Pearce, General
    Counsel; Jordan Pakula, Professional Staff Member.
        Witnesses:
        Mr. Eric Andersen, President, Aon
        Ms. Nancy Watkins, Principal & Consulting Actuary, Milliman
        Dr. Benjamin Keys, Professor of Real Estate, Wharton
    School, University of Pennsylvania
        Mr. Jerry Theodorou, Director, Finance, Insurance, and
    Trade, R Street Institute
        Dr. Judith Curry, President and Co-founder, Climate
    Forecast Applications Network, Professor Emeritus and Former
    Chair of the School of Earth and Atmospheric Sciences, Georgia
    Institute of Technology

              OPENING STATEMENT OF CHAIRMAN WHITEHOUSE \1\
    ---------------------------------------------------------------------------

        \1\ Prepared statement of Chairman Whitehouse appears in the
    appendix on page 33.
    ---------------------------------------------------------------------------
        Chairman Whitehouse. Good morning everyone. Thank you very
    much for being here. I'm calling to order this hearing of the
    Senate Budget Committee entitled Risky Business, How Climate
    Change is Changing Insurance Markets. I will lead with my
    opening statement and then turn to my friend Senator Grassley
    for his opening statement, and then I'll introduce the
    witnesses and we will proceed with their statements. Your full
    statements will be made a part of the record, so please keep to
    the allotted five minutes, so we can get into a conversation.
        Ranking Member Grassley and colleagues, we are here today
    for the fourth Committee hearing, examining the budgetary
    perils associated with climate change. Today we focus on the
    danger to the national flood insurance program and private
    insurers, and on the impact the climate related natural
    disasters will have on insurance markets.
        As we've heard already in earlier hearings, and we'll
    hearing again today, climate disruptions upset insurance
    markets. And that in turn upsets mortgage and housing markets.
    As we have heard, and will again, sea level rise and wildfire
    risk can upset property markets so profoundly as to cause
    systemic economic damage across the whole economy, similar to
    what we lived through in 2008.
        You won't have to have property in flood zones or wildfire
    country to feel the pain. I heard colleagues say that the true
    long-term budget crisis affecting our country is the debt end
    deficits. I'm happy to have that conversation. The President's
    budget would reduce deficits by almost three trillion dollars,
    while adding at least 25 years of solvency to the Medicare
    trust fund.
        House republicans want to add three trillion dollars to the
    debt by extending the Trump tax cuts for the rich. Let's have
    that debate, but let's not pretend that economic shocks don't
    affect the budget. The 2008 mortgage meltdown added 5 trillion
    dollars to the national debt, primarily due to decreased
    revenues. COVID added another 5 trillion dollars.
        In both crises we were warned, failed to act in time to
    head them off, and were engulfed. Today, those trillions have
    added shock and debt amounting to 40 percent of our total
    national debt. And let's not pretend that global climate
    disruption won't create economic shocks. Warnings abound of
    what rising seas, droughts, floods and wildfires will do to
    American families and businesses, and to our economy.
        This is the point. If you're serious about debt and
    deficits, you have to be serious about climate change. The
    intergovernmental panel on climate change, the scientists
    charged with synthesizing the latest science on climate change,
    a group sited favorably by previous republican witnesses,
    released its latest report Monday warning of severe risks to
    agriculture, infrastructure, public health, and coastal and
    flood prone communities.
        The report states climate change is a threat to human well-
    being and planetary health. There is a rapidly closing window
    of opportunity to secure a livable and sustainable future for
    all. The choices and actions implemented in this decade will
    have impacts now and for thousands of years.
        That's a pretty clear warning, impacts for thousands of
    years, for our children's, children's, children's, children's
    children, and on and on into the future.
        I ask my colleagues why are we here if not to try and leave
    our nation and our planet better off for future generations. We
    have the chance now to bend the arc of history, of geophysical
    history, of economic history, of national security history,
    towards a more livable, prosperous future for generations.
        Economic report of the President also came out Monday. Just
    like we've heard in these hearings, it warns that climate
    change threatens a volatile and cascading economic instability.
    Here's a relevant part. Certain financial instruments, such as
    insurance contracts and mortgages--I repeat, insurance
    contracts and mortgages, that directly or indirectly price
    weather related risks are highly exposed to climate change.
        Rapid change of an asset's prices or reassessments of the
    risks in response to a shifting climate could produce
    volatility and cascading instability in financial markets. I
    repeat again, volatility and cascading instability in financial
    markets. Property insurance against catastrophic natural
    hazards is at the forefront of climate change risk exposure,
    and is already showing signs of strain.
        These latest reports echo statements made by the Treasury
    Secretary earlier this month. She declared climate change will
    likely become a source of shock to the financial system in the
    coming years. If climate change intensifies, natural disasters
    and warming temperatures can lead to declines in asset values
    that could cascade through the financial system.
        And a delayed and disorderly transition to a net zero
    economy can lead to shocks to the financial system as well. In
    response to rising insured losses, some insurers are raising
    rates, or even pulling back from high risk areas. This has
    potentially devastating consequences for homeowners and their
    property values.
        ``Developments like these can spill over to other parts of
    our interconnected financial system.'' I know there are
    powerful interests who don't want these hearings to happen, but
    want to change the subject, that want everyone to ignore the
    warnings from scientists, from economists, from financial
    institutions, from government.
        Those powerful polluter interests want us to listen instead
    to their noise and nonsense. The denial, the delay, the
    obstruction, the obfuscation. And for far too long has halted a
    bipartisan defense against the climate threat. It's getting to
    be time to choose. What we do here now will not just have
    impacts for thousands of years, it will be remembered for
    thousands of years. We might do well to consider how we would
    like to be remembered because that moment of choice is upon us.
        Chairman Whitehouse. Senator Grassley.

               OPENING STATEMENT OF SENATOR GRASSLEY \2\
    ---------------------------------------------------------------------------

        \2\ Prepared statement of Senator Grassley appears in the appendix
    on page 35.
    ---------------------------------------------------------------------------
        Senator Grassley. Thank you very much Mr. Chairman. The
    audience for today's hearing on private insurance is different
    than last week's hearing on the President's 2024 budget. As
    such, I would like to recap what we heard last week at our
    first, and presumably only budget centric hearing this
    Congress.
        What we received from President Biden was a budget that
    continues this country on a destructive path of deficits and
    debt. The budget doubles down on the reckless tax and spending
    binge of the administration's first two years. It calls for
    nearly 5 trillion dollars in new taxes that will kill jobs, and
    punish hard-working Americans.
        And despite all the lip service, it does not extend the tax
    relief provided to Americans making under $400,000.00 under the
    Tax Cuts and Jobs Act, so it increases taxes on just about
    everybody. This is a breach of the President's pledge not to
    raise taxes on the middle class. Not surprising for an
    administration that routinely breaks its promises, as well as
    the law.
        We saw Democrats try to justify tax increases by pointing
    out that the last time we had a budget surplus revenues were 19
    percent of gross domestic product. Well that means outlays were
    less, at about 18 percent. Does the Democrat majority want that
    outcome? The administration surely doesn't, as spending in
    their budget will surpass 25 percent of the economy in the ten
    year outlook.
        Outside of World War II and the pandemic, that would be the
    highest spending level on record. Last week before this
    Committee, the OMB Director repeated the fallacy that the
    President's policies have led to deficit reduction. Now only in
    Washington could you claim savings from not continuing
    temporary emergency COVID spending. And it would be laughable
    if it wasn't so disingenuous.
        We saw a continued demagoguery from the administration on
    the issue of major trust fund programs. This administration has
    no plan, no plan whatsoever, to shore up social security for
    future generations. Instead they want to paint us Republicans
    as boogeymen for wanting to prevent automatic cuts that will
    surely occur, absent action by the President and the Congress.
        Where's the President's plan to protect seniors? We know
    that social security is going to get down to no more than 77
    percent of what it pays today by 2035. The Democrats have made
    their message loud and clear. They don't care about the fiscal
    problems facing us right now. Democrats don't have a plan to
    deal with inflation, even though their bills substantially
    increase inflation.
        And what I just said is, according to CBO. From Iowa to
    Rhode Island our constituents collectively believe that our
    exploding national debt is a major problem facing America. The
    last two climate hearings held by the Budget Committee touched
    on the impact of sea level rise, hurricanes and wildfires.
    We've heard from witnesses discussing costs due to these
    climate and weather events.
        We've heard the reasons why we're seeing increased costs.
    Climate change is important, but it is not the only driver.
    Short of the need for better federal forest management, states,
    towns, and individuals can take care of most of their own
    challenges through smarter land use, and development practices.
        While this Committee is the Budget Committee, this hearing
    is not focused on the public federal budget. It targets the
    private insurance and reinsurance industries with speculative
    scenarios in an effort to raise alarm. My Democratic colleagues
    want you to believe that insurance and reinsurance companies
    are in dire straits due to climate change, and that insurance
    will become unavailable and unaffordable.
        I just read last week that insurance companies are leaving
    California for the simple reason that the government of
    California has to regulate every increase that goes into effect
    in insurance, and when the government's involved in that you
    can't be in business in California.
        Well, that's not necessarily the case, and we'll hear from
    witnesses dispelling those extreme models. From hurricanes to
    wildfires, the insurance and reinsurance markets have shown to
    be resilient. Rather than relying on federal intervention in
    the insurance markets, or pushing more costs onto taxpayers we
    should encourage more solutions from the private sector. I
    yield.
        Chairman Whitehouse. Thank you very much. Eric Andersen,
    who is the President of Aon, and has spent more than 30 years
    in the insurance industry. We're delighted to have him here to
    hear his perspective.
        Nancy Watkins is a Principal and Actuary with Milliman. She
    too has spent decades in the insurance industry, and we're very
    pleased to welcome her and hear her perspective.
        Dr. Ben Keys is a Professor of Real Estate and Finance at
    the Wharton School of the University of Pennsylvania. An
    economist by training, he has spent a lot of time studying the
    2008 mortgage meltdown, and more recently has turned his
    attention to climate risk. We welcome his testimony.
        Jerry Theodorou is another insurance industry veteran.
    After a long career in the industry he is currently the
    Director of Finance, Insurance and Trade at the R. Street
    Institute. We look forward to hearing from you.
        And Dr. Judith Curry, appearing remotely is a Professor
    Emeritus. The former Chair of the School of Earth and
    Atmospheric Sciences at the Georgia Institute of Technology.
    She is currently the President of the Climate Forecast
    Applications Network. Mr. Andersen, if you would proceed.

             STATEMENT OF ERIC ANDERSEN, PRESIDENT, AON \3\
    ---------------------------------------------------------------------------

        \3\ Prepared statement of Mr. Anderson appears in the appendix on
    page 37.
    ---------------------------------------------------------------------------
        Mr. Andersen. Good morning, and as you said, my name is
    Eric Andersen, President of Aon, and on behalf of my 50,000
    colleagues at Aon, I would like to thank Chairman Whitehouse,
    Ranking Member Grassley, and each member of the Committee for
    the opportunity to testify on the role that insurance can play
    in mitigating climate risk.
        Climate risk is a global, systemic risk, and the insurance
    industry is a bridge between public risks and private capital.
    At its core, our business is about creating resiliency to
    protect the assets of today, and foster the growth of tomorrow.
    We do this by spreading the impact of risk across a wide array
    of financial participants over time.
        This allows people and businesses to withstand volatility,
    to have the resources and confidence to invest, and to protect
    and rebuild when necessary. Properly managing climate risk not
    only protects against the downside, but can also be a catalyst
    for growth. Creating the tools to match capital to risk to
    ensure the innovation necessary to reduce carbon will create
    both climate transition and economic growth.
        The two forces, protection and innovation, are required.
    Capital will not go where it is not protected, nor will it go
    where it cannot expect a return, even when communal benefit is
    clear. This is why public-private partnerships are so
    important.
        The Committee has asked for an overview of global climate
    risks, and the role of the insurance markets. And I'm pleased
    to provide that this morning. On January 23, 2023, Aon
    published the 2023 Weather, Climate and Catastrophe Industry
    Report, which I have included in my written testimony.
        The study has compiled data on recent extreme weather
    events, and provides insight on our ability to rebuild from
    them. Claims data shows that 2022 was the most expensive year
    on record, with an approximately 50 to 55 billion of the global
    insured losses total resulted from Hurricane Ian in the U.S.
        That storm alone was the second costliest natural
    catastrophe in history from an insurance perspective, surpassed
    only by Hurricane Katrina in 2005, which was nearly 100 billion
    of insured losses. The report also highlights that over 31,000
    people across the globe lost their lives in nat cat events in
    2022.
        While the total number of fatalities remains below average
    for the 12th year in a row, the concentration of the impact has
    increased. Nearly 20,000 fatalities were heat related deaths in
    Europe alone. As shown in our report, decisions in the
    insurance industry are driven by data, giving us a unique
    capability to identify challenges and create innovative
    solutions across both the public and private sector.
        Through public, private partnerships with the government,
    Aon, and others in our industry have helped stabilize Fannie
    and Freddie and the housing crisis, create insurance market
    post-911, and every type of catastrophe in between. Making a
    market for risks that are vital to the economy, but seem
    uninsurable is our most important duty. Just over a decade ago
    in the wake of the financial crisis the mortgage market was
    disappearing, undermining one of the pillars of the U.S.
    economy.
        Just as the U.S. economy was overexposed to mortgage risk
    in 2008, the economy today is overexposed to climate risk. But
    back then the insurance industry, led by Aon, was able to help.
    We developed both analytical and insurance coverage products to
    transfer risks away from Fannie Mae and Freddie Mac to private
    reinsurance markets.
        Ten years on, this public private partnerships exceeds 40
    billion in premium. The models and discipline allowed an
    orderly transition of the secondary mortgage market that exists
    today. We are designing similar risk transfer products to free
    up capital today for climate resilience efforts tomorrow. And I
    would highlight other private partnerships that we have
    undertaken.
        In 2021, the World Bank, Aon, and U.S. AID teamed up to
    mitigate hurricane risk in Jamaica through catastrophe
    coverage. The bonds will deliver 185 million in immediate
    liquidity post-event, ensuring not only humanitarian relief in
    the case of a windstorm, but facilitating immediate economic
    investment pre-event based on the certainty of funds to assure
    infrastructure and property rebuild.
        Currently, we are pioneering the first employee resilience
    bond for a large employer in developing climate volatile
    country to procure a bond to provide cash assistance directly
    to employees in the event of a disaster to meet recovery needs.
        I also want to highlight examples of the industry forging a
    better path on its own by facilitating an energy transition,
    and providing ways to bring new solutions to market quicker.
    For example, cat bonds were created to provide post-event
    coverage for traditional risks, but they also encourage pre-
    investment in research and development that could help clean
    energy transitions by insuring certainty of funds to deal with
    the impact of traditional claims.
        In other cases, we are developing an industry leading
    capability to enable a company to accurately value its
    intellectual property, and then use it as an asset to finance
    growth. This allows them to bypass traditional funding and
    accelerate their time to market. For many green technology
    companies this is becoming their best option.
        Climate risk proposes substantial challenges to insurers
    and insurers alike. While insurance is based on the principal
    of diversifying risk, in many cases insurance risk management
    becomes more challenging as events become more interconnected
    across lines of business, geographical regions and perils. We
    are oriented around the philosophy that big problems need to be
    solved by collaborating, that is exactly that.
        Humanitarian, private and public sectors partnering
    together to provide that solutions can be found together. Thank
    you.
        Chairman Whitehouse. Thanks very much Mr. Andersen. We'll
    just continue right across the table, so that would make you
    next Miss Watkins, thank you for being here.

      STATEMENT OF NANCY WATKINS, PRINCIPAL & CONSULTING ACTUARY,
                              MILLIMAN \4\
    ---------------------------------------------------------------------------

        \4\ Prepared statement of Ms. Watkins appears in the appendix on
    page 161.
    ---------------------------------------------------------------------------
        Ms. Watkins. Thank you Chairman Whitehouse, Ranking Member
    Grassley, and members of the Committee for inviting me here
    today.
        My name is Nancy Watkins, and I am an actuary and principal
    with Milliman, an independent consulting firm. I serve as an
    expert on catastrophe risk for insurers, real estate industry
    groups, and state and federal government agencies. I also
    volunteer to promote insurance availability and affordability,
    alongside the National Association of Insurance Commissioners,
    Western Fire Chiefs Associations, and the United Nations.
        Let's talk about homeowner's insurance and how climate
    change is impacting it. First, climate change is not a problem
    of the distance future. It's already here. Across the country,
    we have insurance protection gaps and crises exacerbated by
    climate change.
        Flood risk in the U.S. is already very high, increasing
    rapidly and unsustainable once you factor in sea level rise.
    NOAA reports that about 80 percent of the East and gulf Coasts
    are seeing more high tide flood days, and that this spring
    about 44 percent of the U.S. is at risk for flooding.
        Most flood risk is not covered by the private market. Only
    4 percent of U.S. homeowners have flood insurance today,
    largely through the government-run NFIP. Unprecedented
    wildfires have driven insurers to shed high-risk policies in
    Western states like California, Oregon, and Colorado. In
    California, homeowners' insurers lost 20 billion dollars in
    2017 and 2018, due to wildfire, wiping out two times the
    cumulative profits earned over the prior 26 years.
        Since 2020, Louisiana has been hit by multiple hurricanes,
    tropical storms, tornadoes and excessive rainfall events. After
    20 companies folded or exited the state, more than 100,000
    policyholders are now in the state-run insurer of last resort.
        Insurance market withdrawals can cause ripple effects that
    endanger entire communities, and create a downward spiral
    that's difficult to emerge from. This could happen gradually,
    but it's possible for weakened markets to collapse quickly
    through a crisis of confidence triggered by one event.
        Second, a broken insurance market is not the problem, it's
    a symptom of a larger problem, too much risk for the market to
    bear. The risks associated with climate change and catastrophes
    are owned by homeowners and the community, not the insurance
    industry. Much of that risk can potentially be transferred to
    insurers if there's a sustainable private market, which rests
    on three pillars, availability, affordability and reliability.
        Climate change is interacting in new ways with pother
    inherent risks, causing cracks in all three of those pillars.
    The policy actions intended to help can actually backfire and
    accelerate the collapse of the insurance market. This generally
    happens because these actions don't address the underlying
    problem that the risk is too high.
        Often, this occurs when land use policies and building
    codes don't keep up with risk, resulting in a mismatch between
    actual vs. perceived risk by homeowners. Because we aren't all
    actuaries, one way to effectively communicate the actual risk
    to consumers is to build the true cost of risk into insurance
    pricing.
        Risk-based pricing drives behavior. If you can buy low-cost
    insurance, or you aren't even required to insure your home
    against flooding, you expect this to be a safe place to live.
    If you can't get affordable insurance, you may act to mitigate
    the home's risk and reduce your premiums, or you may decide
    it's too risky to live there at all.
        The obvious down side is that premiums maybe unaffordable
    for some homeowners. The government could decide that it's good
    policy to subsidize premiums, with the costs ultimately borne
    by others. Generally, current and future policyholders or
    taxpayers who live in lower-risk areas, often in other states.
        To reduce premiums and the cost of subsidization, the only
    effective action we can take is to drive down the risk. Third,
    the cost of driving down climate risk is much lower than the
    cost of inaction. The choice to ignore climate change and
    manage from crisis to crisis puts more families in harm's way,
    with low-income communities likely to be hit the hardest and
    suffer the most. Failure to act early reduces the number of
    options available and drives up the costs of reaction at
    various government levels.
        To avoid this, we need to work collectively to bend down
    the risk curve. We need to have better data, better modeling,
    higher prioritization of mitigation versus disaster response,
    better stakeholder coordination, and resource assistance to
    those areas most in need.
        The sooner our society chooses to face the risks associated
    with climate change, the more options we will have to drive
    down those risks, and the lower the cost will be. Climate risks
    are complex, and difficult to understand. The actuarial
    community is leveraging science and technology and working with
    other experts to measure these risks and communicate them to
    important stakeholders like this Committee.
        We aim to give you the best information available, so that
    you can make informed decisions. Thank you.
        Chairman Whitehouse. Thank you very much, and we turn now
    to Dr. Keys.

       STATEMENT OF DR. BENJAMIN KEYS, PROFESSOR OF REAL ESTATE,
             WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA \5\
    ---------------------------------------------------------------------------

        \5\ Prepared statement of Dr. Keys appears in the appendix on page
    164.
    ---------------------------------------------------------------------------
        Dr. Keys. Chairman Whitehouse, Ranking Member Grassley, and
    members of the Committee. Thank you for inviting me to address
    how climate change is affecting insurance markets. My name is
    Ben Keys, and I am an economist and Professor of Real Estate
    and Finance at the University of Pennsylvania's Wharton School.
        My research agenda examines how households interact with
    the financial system, and how the financial system manages
    risk. Today I'd like to highlight how issues in property
    insurance markets affect household well-being.
        First, rising insurance costs are having a direct effect on
    household's pocketbooks. Across the country, average
    homeowners' insurance premiums rose by 40 percent from 2010 to
    2019. In addition, private insurers are exiting certain
    markets. The number of enrollees in state-backed insurer of
    last resort plans rose by 29 percent between 2018 and 2021.
        With rising climate-related risks, and the rising costs of
    reinsurance, insurers will continue to increase premiums and
    exit markets, leaving homeowners with fewer choices, less
    protection, and more financial distress.
        Family budgeting is difficult as it is. With insurance
    premiums changing every year it's nearly impossible for
    households to accurately forecast their expenses. For instance,
    this January state-backed Louisiana citizens increased their
    rates by 63 percent. Costs are also rising in the National
    Flood Insurance Program.
        In the first year of the Risk Rating 2.0 reform, 75 percent
    of premiums increased by the statutory limit of 18 percent.
    Half of all NFIP policyholders will see their premiums more
    than double after five years. Sadly, these increases will lead
    many households to choose to go without insurance.
        Rising insurance costs directly affect housing markets.
    Each additional dollar of premiums decreases the demand for a
    home, affecting the amount its owners can expect to receive
    when they sell. In more dire situations where homeowners cannot
    find insurance, lenders will not be willing to accept uninsured
    homes as collateral.
        These concerns are not merely theoretical. Economic
    research shows that higher flood insurance premiums lower home
    prices, and make it harder to get a mortgage. My own research
    shows that the threat of future sea level rise lowers home
    prices today, as buyers don't want to be left with an
    uninsurable home down the road.
        In short, home prices have already started reacting to
    climate risk, even as we've realized only a fraction of the
    higher premiums and sea level rise expected in the coming
    decades. I want to briefly highlight why climate risks are so
    difficult to insure.
        After a massive fire in the City of Hamburg, Germany in
    1842, local insurers failed. Reinsurance markets arose for fire
    insurance because fires are idiosyncratic events, allowing
    providers to create a diversified risk pool and spread these
    risks widely and effectively.
        Unlike the chance of a fire in a given city, however,
    climate risk is better described by the title of the latest
    Oscar winner, ``It's Everything, Everywhere, All at Once.''
    Climate change is simultaneously inducing a heightened risk of
    flood, storm damage, chronic inundation, drought, excessive
    heat, and wildfires.
        These risks are inherently difficult to diversify. While
    reinsurance and the catastrophe bond market will continue to
    play a role in maintaining functioning insurance markets, there
    is no avoiding the fact that the increasing risk of large loss
    events will mean higher costs for consumers.
        The limitations of private insurance markets for insuring
    against these climate risks points to a larger role for the
    government. State and federal insurance entities will bear more
    of these risks going forward as private insurers pull back.
        If we do not take action on climate adaptation and
    mitigation, then we can expect private markets for wildfire and
    wind coverage to increasingly resemble the NFIP and rely on
    public support.
        Further costs will be borne by Fannie, Freddie, and the
    FHA, who make up two-thirds of our 13 trillion dollar mortgage
    market, and by FEMA and other post-disaster aid sources. Topics
    surrounding insurance often feel remote, or difficult to
    digest, but they impact everyday households. Far too many
    Americans are currently unprotected from climate risks.
        Only one third of households in flood zones have flood
    insurance. And the First Street Foundation estimates that 6
    million households are at significant flood risk, but lie
    outside of FEMA's outdated floodplain maps, making them likely
    unaware of their danger.
        Private insurers' aim to price their risks accurately, so
    we should pay close attention to the choices that they make. No
    matter your views on climate science, insurers are responding
    to the increased frequency of high-cost disasters and the
    latest scientific forecasts.
        The departure of insurers from property markets has serious
    implications for home values, the dominant store of wealth for
    the average household, and for communities that rely heavily on
    property taxes to provide basic services, as well as defend
    against further climate related change.
        Now is the time to identify policy solutions to reduce
    American families', businesses', and taxpayers' exposure to
    climate risk. Thank you again for the opportunity to testify.
        Chairman Whitehouse. Thank you very much Dr. Keys. Next Mr.
    Theodorou.

    STATEMENT OF JERRY THEODOROU, DIRECTOR, FINANCE, INSURANCE, AND
                     TRADE, R STREET INSTITUTE \6\
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        \6\ Prepared statement of Mr. Theodorou appears in the appendix on
    page 172.
    ---------------------------------------------------------------------------
        Mr. Theodorou. Chairman Whitehouse, Ranking Member
    Grassley, esteemed members of the Committee, thank you for the
    opportunity to testify on how climate change is changing
    insurance markets. I am Jerry Theodorou. I'm the Director of
    the Finance, Insurance and Trade Program at the R Street
    Institute, where as earlier in my career I conduct independent
    research on insurance markets and what drives their
    performance.
        Today's issue is important for insurance providers and
    buyers because climate change alters historical patterns of
    severe weather. It adds uncertainty to an industry whose role
    is to provide stability and protection from loss. There is
    broad consensus among insurers that the climate is changing in
    ways aggravating extreme events.
        My comments summarize more extensive written testimony and
    address three questions at the heart of today's hearings. What
    is the impact of climate on insurance markets? What is the
    financial condition of insurance markets? And how do insurance
    markets respond to climate change?
        Insurers are in the business of providing protection from
    severe weather events when wind, fire, hail, and flood release
    their fury, causing billions of dollars in property damage,
    insurance is the economy's financial first responder, paying
    claims, getting customers back on their feet.
        Property insurance covers severe weather events, and
    insurer's are capitalized sufficiently to meet those claims
    obligations. When such weather costs billions, or tens of
    billions of dollars, insurers are cushioned with financial
    protection from reinsurance, the industry's shock absorber.
        Reinsurance enables insurers to limit their losses,
    maintain financial stability, while providing stability to
    customers. The insurance industry is highly competitive with
    over 3,000 insurers, ranging from large national giants to
    small county mutuals. Reinsurance markets are also competitive,
    with hubs in Continental Europe at Lloyds in Bermuda and in the
    U.S.
        And just as primary insurers limit their losses with
    reinsurers, reinsurance companies buy retrocessional cover to
    protect their balance sheets. So the broader insurance industry
    thus provides three protective layers, primary insurance,
    reinsurance, and retrocessional reinsurance, making insurance
    markets exceptionally durable.
        To illustrate, in 2010, in the wake of the Great Recession,
    there were 157 bank failures, but only eight insurance company
    impairments. The low failure rate of insurers is due to their
    focus on capital management, dedication to shepherding their
    capital has enabled the longevity of insurers and reinsurers.
    Many mutuals were founded in the early 1800's and are still
    going on strong today.
        The income statement of the insurance industry is solid. In
    only one of the past five years was there an underwriting loss.
    In 2022, from automobile repair cost inflation, and the
    insurance industry's balance sheet has strengthened in recent
    years, it's surplus, the extent to which assets exceed
    liabilities, rose from 750 billion dollars in 2018, to over 1
    trillion dollars in 2021.
        And reinsurers also delivered healthy results through 2022.
    Insurance markets respond to climate change in two broad ways,
    by encouraging buyers to mitigate losses, and with new
    products. Loss mitigation measures to improve resilience,
    include discounts for hardening their structures and credits
    for communities that establish natural barriers, such as
    mangrove forests and marshes between bodies of water, and
    buildings that are constructed.
        Other ways that insurers respond to climate change include
    named peril, rather than all risk policies, parametric covers,
    rebalancing of investments, attracting third party capital, and
    offering private market alternatives to government programs.
    Ignoring climate change is not acceptable. Climate skeptics are
    not to be found in the fundamentally conservative insurance
    industry, whose job after all is to restore things to the way
    they were.
        We acknowledge those who call for waking up to the reality
    of climate change. Insurers have acknowledged it for many
    decades. Insurance markets have an appetite for climate risk,
    are in the business of dealing with it, and will continue to
    play a key role in absorbing and mitigating its risk to our
    economy. Thank you for the opportunity to testify, and I look
    forward to your questions.
        Chairman Whitehouse. Thank you very much. And our final
    witness, remote, is Professor Curry.

       STATEMENT OF DR. JUDITH CURRY, PRESIDENT AND CO-FOUNDER,
     CLIMATE FORECAST APPLICATIONS NETWORK, PROFESSOR EMERITUS AND
     FORMER CHAIR OF THE SCHOOL OF EARTH AND ATMOSPHERIC SCIENCES,
                  GEORGIA INSTITUTE OF TECHNOLOGY \7\
    ---------------------------------------------------------------------------

        \7\ Prepared statement of Dr. Curry appears in the appendix on page
    180.
    ---------------------------------------------------------------------------
        Dr. Curry. Good morning. I would like to thank the
    Committee for this opportunity to present testimony. I'm Judith
    Curry, President of Climate Forecast Applications Network, and
    Professor Emeritus at Georgia Tech. My expertise is on climate
    dynamics, uncertainty and risk science.
        Insurance markets are influenced by our perceptions of
    climate risk. Referring to climate change as a crisis is at
    odds with professional judgments of climate risk. The so-called
    climate crisis isn't what it used to be. In 2013, in the IPCC
    Fifth Assessment Report.
        The extreme emissions scenario, RCP8.5 was regarded as a
    business as usual scenario. With expected warming of four to
    five degrees Centigrade by 2100, now there is general
    acceptance that this extreme scenario is implausible. The
    baseline warming currently used by the UN Conference of Parties
    has been reduced by half, to 2.5 degrees by 2100.
        This is an additional 1.3 degrees above current
    temperatures. It's difficult to overstate the importance of the
    shift in expectations for extreme weather events associated
    with rejection of the extreme scenario. Rejecting an extreme
    scenario has rendered obsolete much of the climate impacts
    literature and assessments of the past decade that are focused
    on this scenario. Landfalling hurricanes incur the greatest
    property and casualty losses among extreme weather events.
        Recent international assessment reports have low confidence
    that there have been detectable changes in the long-term record
    of hurricane activity beyond natural variability. The insurance
    industry's perception of a substantial future risk from
    increasing hurricane damage is enforced by three recent reports
    from the insurance sector.
        These reports infer misleadingly high damages by 2050, by
    using the implausible extreme emissions scenario. They also
    assume substantial increases in the number of major hurricanes,
    which is at odds with recent assessment reports. Further, these
    reports neglect the major modes of multi-decadal natural
    variability. These have had a dominant influence on the
    Atlantic hurricanes in the historical record.
        Implausibly high projections of U.S. landfalling hurricanes
    by 2050 result in inappropriate notes of insurability,
    inappropriate pricing of insurance, and misguided confidence
    levels of investors. Not only have we been misled about the
    amount of warming to expect and its impacts, we have also badly
    mischaracterized the nature of the risks from climate change.
        We have conflated the slow, incremental risks from warming
    with the emergency risks associated with extreme weather events
    that have little to do with the warming. This mistaken
    conflation of risk is driving the stated urgency for emissions
    reductions and the rapid transition of our energy systems.
        A key element in insurance losses from extreme weather
    events is the reliability of the electric utility system,
    extended power outages contribute to loss of life. During
    extreme cold events outages can result in substantial property
    damage from burst water pipes. This is what happened as a
    result of the extreme cold event in Texas last year.
        And worse winter problems are associated with continental
    scale high pressure systems, which produce very cold
    temperatures and weak winds over most of the U.S. Now, many
    coal and nuclear power plants have shut down. A lack of onsite
    fuel storage contributed to the Texas outage, and the recent
    Christmas blackouts in areas served by the Tennessee Valley
    Authority.
        Near term risk associated with the rapid transition of
    electric utility systems to wind and solar, we can reduce the
    transition risk by reducing the urgency of the transition to be
    commensurate with the slow incremental risk from emissions
    driven warming. This would allow time for evaluating and
    incorporating newer technologies that do not reduce electric
    power reliability.
        Climate change and its perceived threats, provide an
    opportunity to broaden the relevance of the insurance sector to
    risk mitigation. Adaptation provides new opportunities to
    underwrite climate exposure risks. Insurance companies can help
    prevent customers from incurring damage.
        They can also work with the public sector to improve their
    base standards and land use policies. Climate variability and
    change with the attendant extreme weather events is best
    regarded as an ongoing predicament. This will require continued
    adaptation by communities and businesses, plus mechanisms to
    share and transfer financial risk. Thank you.
        Chairman Whitehouse. Thank you Miss Curry. If I might Mr.
    Andersen, ask you for a more practical and common place
    definition of the phrase you used, global systemic risk. We've
    heard a considerable number of our witnesses talk about
    systemic risk. It has a rather bland quality to it, but it
    describes something that is anything but bland. What would be
    your description of systemic risk?
        Mr. Andersen. So what we mean by systemic risk is the
    interconnectedness of these types of risks, and a number of the
    other panelists also mentioned that ultimately one event has
    implications on supply chains, physical damage, displacement of
    people. And so, history, you know, as people have looked at
    those risks over time they've often looked at them very
    separately.
        But with climate change the effect that it is having on the
    size of the storms, the wildfires, the effects of it, are
    actually creating risks that are so interconnected they had to
    be dealt with in totality as opposed to just by individual
    factor.
        Chairman Whitehouse. The way that I have described this is
    that climate change causes weather anomalies, and those
    anomalies make events harder to predict. And that added
    difficulty of prediction compromises insurability, and as
    insurers either withdraw or raise prices, that has an effect in
    mortgage--in property markets because it's very hard to buy a
    mortgage property if you can't ensure it.
        And of course, without mortgages, demand for properties
    collapses, because you're only selling to all cash buyers at
    that point. And when demand collapses, values collapse, and
    that can cause severe economic harm across the entire economic
    landscape. Is that a fairly accurate description of how this
    cascades through to from weather discrepancies to a general
    property value's problem?
        Mr. Andersen. I think your underlying hypothesis that the
    models of old that have been used looking backwards are not as
    valuable to the models that need to be developed for a changing
    climate. So that is the underlying premise. If you're looking
    to match risk and capital together, the inherent sort of
    assumption in that is confidence that the risk that's being
    transferred is predicted, and therefore can be priced
    appropriately for the risk that's assumed.
        Chairman Whitehouse. You can't insure what you can't
    predict.
        Mr. Andersen. You can't insure what you can't predict
    because the capital will not be protected.
        Chairman Whitehouse. You made a comparison in your
    testimony between climate risk today and mortgage risk in 2008.
    Why did you make that comparison?
        Mr. Andersen. It was designed to be an example of where
    using the information that Freddie and Fannie had on mortgage
    default risk, the ability of the insurance and reinsurance to
    bring modeling capability to do the predictability, actually to
    understand that risk, and then bring new sources of capital
    into the market. That's essentially what we're talking about
    with climate.
        Ultimately, the size of the capital pools that need to be
    brought to bear to help manage and transfer these risks to a
    broader financial sort of pool of capital is ultimately our
    strategy in helping clients deal with this issue.
        Chairman Whitehouse. And to perhaps state the obvious, as
    the President of Aon Corporation, you have a fiduciary duty to
    your shareholders and to your employees, and to your customers,
    to try to get this right. And that requires that you pursue and
    obtain reliable forecasting, not just for the business reasons
    of making money, but also for the fiduciary reasons of not
    misleading anyone.
        Is that a fair description of accountability that you
    operate under?
        Mr. Andersen. We take a very strong position that our
    opportunity to help our clients manage this risk, that when you
    talk about it as a client, it's not just a corporation, it's a
    community, it's people that live and work in that community.
        Our efforts around understanding and trying to predict the
    effects of climate change, and then developing products and
    solutions that actually allow people to transfer that risk as
    best they can, so that they have the funding available to
    either rebuild, or support those displaced individuals, we view
    as one of our most important roles going forward.
        Chairman Whitehouse. And you can't just say what you
    please. You're bounded by the fiduciary duty to be truthful and
    accurate, and operate on the best information you can find.
        Mr. Andersen. Of course.
        Chairman Whitehouse. Ms. Watkins, in your testimony you
    talk about the ripple effects of insurance withdrawals, which I
    think I tried to explain in my questioning to Mr. Andersen,
    that it can endanger entire communities and create a downward
    spiral that's difficult to emerge from, and in which collapse
    can happen quickly, often to a crisis of confidence triggered
    by one event.
        Could you elaborate a little bit on that scenario, and how
    that plays into the problem of systemic risk and economic harm?
        Ms. Watkins. Yes sir, and I do agree with your description,
    and I would extend it a little farther to when real estate
    values start dropping. Also, this is accompanied by quality of
    life issues. In my current home state of California, we're
    having power outages, smoke that can make it hard to go outside
    all summer long. A day where we never saw the sun because of
    smoke. Those sorts of things, the need to evacuate frequently,
    which happens a lot of times in hurricane prone areas. That
    kind of uncertainty can combine together to cause people to
    want to leave.
        At that point you have a disincentive for businesses to,
    you know, establish new roots in a community. You have a
    reduction of the tax base. Concurrently, you know, real estate
    investors and you know, municipal bond investors, they're also
    looking at climate change and making their long-term decisions.
        And so, the influx of investment into a community that's
    not resilient to climate can be reduced as they're competing
    with communities in other areas for that kind of investment.
    So, the tax base goes down, the cost of borrowing can go up. It
    can be harder and harder for a community to try to deal with
    the risk even if it stayed the same.
        But if it's increasing, they just get squeezed. So that's
    what I'm talking about in terms of the downward spiral. The
    crisis of confidence, I mean I think in a non-insurance example
    in the recent news we have Silicon Valley Bank. The kind of
    last man at the bar syndrome, where the people involved in the
    risk who felt like they were at risk, decided they were going
    to pull out.
        And that pull out could actually not only endanger that
    bank, but other banks that others thought were in similar
    situations. Whether or not they had actually made the same
    kinds of decisions that led to Silicon Valley Bank's collapse.
    So what we have, just for example, California, we have the
    California Fair Plan, which is growing unsustainably high as
    the insurance market withdraws, the Fair Plan increases.
        It's supposed to be a crutch for the market. It's supposed
    to prop up the market while the market heals itself. But the
    problem is when the policymakers decide to turn the crutch into
    a leg, and start paying attention to protecting the crutch, and
    making it more of a long-term solution, it's no longer an
    effective crutch, and it's not a very good leg either.
        So, we're not healing the broken system and the process.
    Right now in California, the Fair Plan is running at a 332
    million dollar deficit. That was about a year and a half ago.
    The rates are 72 percent inadequate at last report. They're
    only reinsured for a 1 in 31 year return period at last report.
        If the Fair Plan, whose total insured value has gone up by
    over four times in five years were to have a multi-billion
    dollar loss, which is very possible, there's an unlimited
    assessment on the California insurers who stay in the market.
    So every insurer who wants to stay in California--maybe they've
    pulled out of high risk areas, but they're insuring low-risk
    areas.
        They are on the hook for the Fair Plan's potential
    insolvency in case of a large event.
        Chairman Whitehouse. I've got to stop you there since other
    Senators are asking to wait their questions, but--ask the
    questions, but thank you very much. And Senator Johnson is
    next.

                      STATEMENT OF SENATOR JOHNSON

        Senator Johnson. Thank you Mr. Chairman. Dr. Curry, let me
    start with this statement. I'm not a climate change denier, I'm
    just not a climate change alarmist. I get a feeling from most
    of your testimony maybe you're a little bit more on that scale
    with me than more of alarmist.
        But as you've stated in your testimony you talked about
    when you look at the real history of occurrences of hurricanes.
    I've certainly looked at the history of wildfires, but there's
    really nothing out of the ordinary in terms of long-term
    perspectives on this. Can you expand a little bit more on what
    you're talking about? You're just referring to that in general.
    Can you get a little bit more specific?
        Dr. Curry. Sure. Looking back in the historical record
    extreme events, you know, in the first half of the 20th
    Century, particularly the 1930's the weather and climate
    extremes were much worse than anything we've seen so far in the
    21st Century, in terms of the worst landfalling hurricane, the
    worst heatwaves, the worst droughts, the worst fires, and on
    and on it goes.
        And if you looked at the paleo climate records you can
    extend even further back, and you see evidence of even, you
    know, greater extremes. But the worst atmospheric river event
    in recorded history occurred in the 1861 to 1862 winter in
    California. I mean we think it's bad this year, but it was much
    worse back in the 19th Century.
        And even worse events that you can see in the paleo climate
    records. So, we need to temper our perception of what's
    actually going on right now with the extreme events.
        Senator Johnson. So I appreciate that, and you know, we
    mentioned an earlier witness talked about Silicon Valley Bank,
    and what's happening there, but she has a lack of confidence.
    And so if we have all these hail and fire predictions it's
    going to reduce confidence, and it's going to be a self-
    fulfilling prophecy, so lets' talk about the reality.
        You just talked a little bit about the reality of extreme
    events not being out of the ordinary. Mr. Theodorou, again, I
    don't deny the loss in property, but isn't that more related to
    the fact that we are building incredibly expensive properties
    in highly vulnerable areas, where there's been mudslide areas
    in California, or wildfire areas, where we're not doing proper
    forest management to prevent wildfires.
        You know, what we're building out into the Gulf Coast in
    the Atlantic shoreline, unbelievably expensive properties, so
    when a hurricane does occur, yeah, there's going to be a lot of
    property damage. So isn't the real issue here properly pricing
    the insurance, and quite honestly, making the owners pay for
    the risk that they are taking?
        And we don't do that. We subsidize that risk, and so
    there's more risk taking. Can you kind of speak to that?
        Mr. Theodorou. Yes. Thank you Senator Johnson for the
    question, and it's both. And indeed there are more values now
    that are at risk. There is more unsound development on coastal
    areas, and on flood plains. There's more impervious surfaces as
    you have asphalt instead of dirt to observe the water.
        So you have higher values, and that's the driver of the
    higher losses, but also there are more of these extreme events.
    The 1861-1862 ARK storm in California that led to Governor
    Elect Leland Stanford going to his inauguration in a rowboat in
    Sacramento was considered a one in a 1,000 year event. That's
    why it was called an ARK storm, ARK, atmospheric river K for
    1,000.
        Research has shown that it was actually happening every 200
    years, with more recent research from NOAA is now saying that
    this can happen every 40 or 50 years. So there are more of
    these extreme events, and as you said.
        Senator Johnson. That's contrary to what Dr. Curry's
    talking about, but go on. By the way, do you have the insurance
    industry, have you calculated the property value in these
    vulnerable areas today versus let's say 50 years ago? I mean do
    you have a sense of how much more property is at risk?
        Whether or not we have more extreme events, I mean when an
    event occurs, we're going to have a lot more property damage.
        Mr. Theodorou. The industry does tabulate this, and there
    are modelers that look at that, but indeed the values have gone
    up because of population growth and building, and building,
    which is not sound is on the coastal areas, and on flood
    plains, not built to code, so that's an important factor, and
    we should discourage this sort of bad behavior, and have
    protections, mitigation.
        But the evidence, the facts are looking at the events and
    the severity of the events that have been more frequency of
    severity.
        Senator Johnson. So my point is that's something we can do
    something about, not building in vulnerable areas.
        Mr. Theodorou. Yes.
        Senator Johnson. We can do something about building to
    code. I don't think we can hold back the tides, so why don't we
    address what we can actually do versus scare the you know what
    out of everybody, reduce confidence. That doesn't help either.
    So thank you Mr. Theodorou.
        Mr. Theodorou. Okay. Thank you.
        Chairman Whitehouse. Senator Van Hollen, and then the
    distinguished Ranking Member.

                    STATEMENT OF SENATOR VAN HOLLEN

        Senator Van Hollen. Thank you Mr. Chairman. Thank you to
    all our witnesses. I think the goal here is to really
    understand the risk. It's not to scare anybody, but it's to
    make sure people understand the reality that when you have a
    climate crisis and you have more extreme weather events, and
    you have increase in sea level rise, we have to understand what
    it's impact is, and plan ahead, so that we can avoid a crisis
    when it comes to the financial piece.
        We obviously have to address the climate piece, and the
    Chairman and I and others have been working on that, but we do
    need to understand what's happening here. So and Dr. Keys, in
    recent weeks we have seen a number of very high profile bank
    failures. I understand fully that the insurance markets are
    regulated differently, but they still need to be adequately
    capitalized.
        So do you perceive a risk today with respect to insurance
    companies being prepared as a matter of capital to deal with
    the ongoing risks from climate change?
        Dr. Keys. Well thank you for the question. Senator, I think
    others on the panel may have more expertise on this than I do,
    given that they manage a balance sheet more directly. But I
    think this is an absolute cause for concern.
        And when we look at the failures of insurers in Florida,
    and decisions to pull out of Florida in particular, I think
    that speaks to some of these concerns directly in that there
    are worries that they don't have the balance sheets directly,
    and they can't obtain sufficient reinsurance to protect
    themselves, that they're leaving risky markets.
        And so one of the explanations for the shift in their
    choice of which markets to insure and which to not insure, is
    in part a function of their balance sheet.
        Senator Van Hollen. Well let me just pose the same question
    to Mr. Andersen, and picking up on what Dr. Keys just said,
    right there are two ways that insurance companies could respond
    if they wanted to address the risk. One is to increase rates,
    and that's true also in the reinsurance market, and that
    obviously increases rates for consumers. Or they can decide
    just to pull out of insurance markets in certain areas, like
    parts of Florida.
        Can you talk about what we're seeing right now and its
    impact on consumers?
        Mr. Andersen. Sure. The crisis of confidence that's
    happening in the reinsurance market that's leading into the
    insurance market is essentially a crisis of confidence around
    the ability to predict loss, which is going to be your
    question, is climate changing the confidence level that these
    insurers and reinsurers have around providing products to
    consumers or businesses.
        And the short answer is the reinsurers today have been
    withdrawing from high risk areas around wildfire, around flood
    in particular. Some of the other natural catastrophes, like
    earthquake, less susceptible to this topic, and so not as much
    dynamic change.
        And so the question of is there enough capital to handle
    the transition today? The answer is no. The fact that how do
    you create more capital is better transparency around predicted
    losses. That's where a lot of the working the industry is going
    today because private capital will not join the market unless
    they expect a return, and they will not be able to expect a
    return if they don't know the risk they're taking.
        And so, the answer to that is they essentially trim their
    offerings. They pull out of high-risk areas, they drop certain
    products, they get out of certain states. This is happening by
    the way around the world, it's not just a U.S. issue, but the
    underlying facts of the decision-making are the same, which is
    they don't understand the risks they are taking, and therefore
    they won't take them.
        Senator Van Hollen. Right. And Ms. Watkins just to follow-
    up on this conversation, it seems that there are actually three
    possibilities here. One is that we don't do enough in advance,
    and you have a meltdown in the ability of insurance companies
    to make coverage, or that you increase price, and obviously
    that means consumers are paying more, or insurance companies
    pull out entirely, as we're seeing in Florida and other places.
        When insurance companies pull out entirely it's the
    taxpayer that ends up picking up the bill. Isn't that right?
        Ms. Watkins. That's exactly right, Senator.
        Senator Van Hollen. I mean those are the options. Can you
    talk a little bit about what's going to happen to homeowners in
    coastal communities? It seems to me there are really just two
    options for folks who are not--don't have any more coverage.
    One is that they're on their own and they have huge risks, and
    you know, their nest egg just goes under.
        Or, the public sector provides a bailout. Are those the two
    options there?
        Ms. Watkins. As of right now, yes sir, I do believe those
    are the options. And so, I mean we do have federal disaster
    aid, which will come in if there is like an event that creates
    a loss, and they have no insurance. That would help them
    somewhat, but it won't really restore them to, you know, a
    resilient position for their home.
        I think that to get in front of that, and to try to give
    people better information when they're making the decision to
    live in a place, having the insurance risk signal would help
    avert both of the situations that you mentioned.
        Senator Van Hollen. Thank you. Well we see what happens
    when people don't get in front of a banking situation. The same
    would hold true when it comes to the insurance market. Thank
    you Mr. Chairman.
        Chairman Whitehouse. Thank you Senator. Senator Grassley.
        Senator Grassley. Yeah, I'd like to go to Mr. Theodorou,
    and follow-up a little bit where Senator Van Hollen's subject
    was brought up. You spent 30 years as a leader in the insurance
    industry, however you are now an outside analyst with no
    financial ties to the industry I understand.
        Could you explain how the insurance industry is designed to
    withstand hits and manage risk and has done so consistently?
    Should we be worried that the sky is falling on top of the
    insurance and reinsurance industries because of climate change?
        Mr. Theodorou. Thank you Senator Grassley for the question,
    which is actually two questions. Is the insurance industry
    designed to take the hits, and should we be worried that the
    sky is falling? If I can address the second one first, is if we
    put it in context, the stresses on the insurance industry
    historical context. There have been crises and problems that
    the insurance industry has faced before. Just go back to the
    pandemic a few years ago.
        Early in the pandemic there were voices saying that
    workers' compensation losses would be so great because of
    essential workers contracting the virus, going to the emergency
    rooms and dying, that it would be too big a loss on the
    insurance companies for workers' compensation.
        That did not happen. Workers' compensation insurance did
    quite well, and rates have come down in most states. Dial back
    a few more years to the subprime mortgage crisis. There were so
    many bank failures, but the insurance industry did not have
    more than its long-term average of failures, so it withstood
    that crisis as well, which was systemic as it affected many
    aspects of the economy.
        Go back another ten years, Lloyds of London, Lloyds had its
    crisis in the 1990's when asbestos risk from U.S. asbestos
    liability almost brought Lloyds to its knees, but it went to
    work with reconstruction and renewal, reformation, they fixed
    their underwriting practices, and now Lloyds is a strong
    player.
        Ten years before that in the 1980's the great liability
    crisis when lawsuits were going up from medical malpractice
    product's liability, and there were voices there saying that
    this is going to destroy the industry, but it did not. So, it's
    withstood many crises before. It's a durable industry. We look
    at companies that have been around for 200 years.
        Chairman Whitehouse, Providence Mutual, founded in 1800, so
    it's been around for 223 years, Vermont Mutual, early 1800's.
    We mentioned Cologne Reed, 1846, which is now part of Berkshire
    Hathaway. So, to be in business for 200 years, to face these
    kinds of crises, you've got to be doing something right for
    your customers.
        Senator Grassley. Okay. I want to go now to Dr. Curry. Many
    risk assessment firms use extreme hypothetical data when
    evaluating climate risk for commerce. We've heard several,
    especially wild figures today. Could you explain how the data
    from these models are transformed into these alarming
    statistics, and what incentives do companies have in using
    these apparently flawed metrics, and how does it affect the
    public?
        Dr. Curry. Okay. Thank you. Well it's a challenge to keep
    up with all the latest scientific publications. Extreme
    projections of climate risk from risk assessment firms are
    largely driven by focusing on the extreme and implausible
    emission scenario, RCP 8.5. These firms may be unaware that RCP
    8.5 is now regarded as implausible.
        Mr. Theodorou mentioned a recent publication that predicted
    an increase in frequency of extreme atmospheric river events to
    every 40 years. However, the climate model simulations used in
    this paper was driven by the extreme implausible emissions
    scenario, RCP 8.5. So, continued use of those extreme
    implausible emissions scenario, is misleading both the public
    and investors about what kind of extreme events we might expect
    in the coming decades.
        Senator Grassley. Dr. Curry, how have sensationalized
    emissions scenarios come to dominate the discourse of climate
    change risk, and why has it taken so long to realize that these
    scenarios are implausible?
        Dr. Curry. Okay. The extreme RCP 8.5 scenario was
    originally formulated to provide an upper limit to possible
    climate outcomes. RCP 8.5 has been misleading, and referred to
    as a business as usual scenario, which it is not. Climate
    scientists find that the extreme scenario helps understand how
    the climate system might respond to a big poke.
        Scientists working on climate impacts, prefer the extreme
    scenario, since it gives the most dramatic results. Such
    research receives a lot of media attention, and supports a
    political agenda of urgently reducing emissions. For the most
    recent IPCC assessment, a more advanced approach to developing
    scenarios was used.
        These new scenarios were derived from socioeconomic and
    technological trajectories that the world might follow in the
    21st Century. However, energy economists found it extremely
    difficult to develop trajectories to achieve the 8.5 forcing
    without making implausible assumptions, such as increasing coal
    use by 600 percent.
        But by this time, the IPCC had already issued its
    assignments to the climate modeling community, with a continued
    focus on the extreme 8.5 scenario.
        Chairman Whitehouse. Thanks very much. Senator Padilla.

                      STATEMENT OF SENATOR PADILLA

        Senator Padilla. Thank you Mr. Chairman. I was glad to
    participate in a recent hearing on wildfires to highlight the
    importance of investing in climate and disaster mitigation,
    especially since the costs pale in comparison to the costs of
    inaction.
        That's why today we must also consider the importance of
    these preventative efforts. This includes the California
    Wildfire Mitigation Program, which is the state level
    partnership with FEMA to provide grants for home hardening, and
    other proactive measures.
        Not only do these actions protect homes and save lives, but
    they also provide confidence to insurers, which can help bring
    down costs for families. However, many of these programs
    require a federal cost share, which can be difficult for low-
    income and tribal communities to afford. And we simply cannot
    afford to further compound the issue by only protecting those
    who can afford it.
        My first question is for Ms. Watkins. Could you discuss the
    importance of ensuring that the communities of greatest need,
    greatest vulnerability often, are able to access these
    preventative resources, and maybe discuss briefly, whether we
    should consider modifying insurance premiums for families who
    need that flexibility?
        Ms. Watkins. So, just to clarify, you're asking me how to
    get communities of greatest need access to federal grants?
        Senator Padilla. How do we address the accessibility, vis-
    a-vis affordability concern?
        Ms. Watkins. Thank you for asking. Yes. I believe that the
    best way to help the communities--lower income communities
    especially, is to give them information first, realistic
    information of what they can expect, and then assist them. And
    that really starts with the best view of risk possible, and
    then an understanding of what are the most effective ways to
    drive down the risk.
        Wildfire is really complicated because it often starts in a
    place that's outside the community, so it's not under their
    control. PG&E, of course, you know, has been associated with
    many of the ignitions. There's lightning, but it can start in
    other lands, and then burn into a community.
        So in my work with the Western Fire Chiefs Association,
    what I've been told is that our coordination between the Forest
    Service, and then inside the communities, and the insurance
    industry, and the different areas responsible for fire
    management is not where it should be.
        So, what I believe they're saying is that we should
    prioritize WUI community fuel mitigation, and then have more
    resources devoted to the communities that need the most
    resources.
        Senator Padilla. Okay. Just because time flies around here.
        Ms. Watkins. Sure.
        Senator Padilla. Same question, to follow-up with you on
    the affordability concern. There ought to be some flexibility
    to recognize the ability to pay in some communities, and some
    households. You touched on the dynamic of where fires start.
    There's the dynamic is where fires impact as they grow. I won't
    rattle off all the statistics of the series of wildfires
    California has experienced this last decade.
        Worst on record in a nearly 13 percent of land area
    California has burned, et cetera, but needless to say every
    community has some level of fire risk. What I'd ask, and I
    invite all of you to jump in here, what the crisis that we've
    seen, the wildfires in the west have meant for access to
    insurance policies in the west, particularly for rural
    communities, or the communities in this, you know, wild land
    interface areas.
        Mr. Theodorou. Thank you Senator Padilla for your question.
    Other states have made available grants for strengthening, for
    hardening homes, for having the roofs such attached so that
    there wouldn't be embers going through the ventilation.
        Alabama initiated a program about ten years ago which was
    copied recently by Louisiana. And in my written testimony on
    the record we do discuss California and Florida. They're
    offering incentives in the form of premium discounts. And to
    the affordability question, first the prudence, or the
    imprudence of building in areas where you have the urban wild
    interface, needs to be addressed.
        You need to have the standards, such as the IBHS, the
    Insurance Institute for Building and Home Safety. Business and
    Home Safety that has the specifications, what are the codes to
    limit wildfire. And as for the affordability, as with other
    programs means testing should be available for those that are
    indigent, or otherwise can't afford the insurance, or the costs
    of doing the hardening.
        Chairman Whitehouse. If you want to go ahead Senator. You
    can take another minute. Oh, I'm sorry, Senator Brown is here.
    I apologize.
        Senator Padilla. (Off mic). Better modeling with wildfire
    risk, and identifying mitigation tools, and other potential
    solutions. Thank you Mr. Chair.
        Chairman Whitehouse. Thank you very much Senator Padilla.
    Senator Braun.

                       STATEMENT OF SENATOR BRAUN

        Senator Braun. Thank you Mr. Chairman. This is a
    complicated discussion in the sense that there's so much
    variability in terms of what the future does look like. It
    looks like the science is starting to zero in on some
    particularity. In the actuarial business that you're in, it
    seems like it would be probably one of the hardest topics to
    get in some type of way that you feel comfortable with what the
    future looks like.
        I think--I'm a republican that believes that we need to be
    in the discussion. I mostly interface with farmers because I've
    been involved in agriculture, and they think something is
    afoot. I think that if it's as bad as me, it may be forecast to
    be, and I'd love to hear your opinion on it because that's
    where premiums and risk management are all going to have to
    come in, and I think you're at the forefront of how we finally
    crystalize, you know, what this discussion is about in general.
        So I would like anyone that wants to weigh in on it. Have
    you actuarily gotten your hands around what this is going to
    look like, and should this be something that we're trying to
    prevent in terms of mitigation ahead of the calamity? Are you
    going to just kind of take each year of further information to
    do a better job at kind of making sure that the financial risks
    are covered with fairer premiums, based upon the magnitude of
    the underlying risk?
        That sounds like a complicated formula to come up with, and
    I'd like your honest opinion if you think that you'd be having
    huge risks that you couldn't really cover adequately, and that
    maybe some of the solution would be to mitigate ahead of the
    problem, since it especially looks like the world is maybe not
    buying in collectively to do the things that might even be
    prescriptive.
        When I look at the CO2 that's being put into the air by
    other parts of the world, there are only a few countries headed
    in a place where it might make sense if in fact the science
    looks like that's where we're actually headed. It's kind of a
    sprawling question, but I think it hits the heart of the
    matter.
        Mr. Andersen. So maybe I'll bravely jump into the first
    part of that. And the one thing that stuck me that I wanted to
    add to your question is the timing is a real issue for us, for
    the insurance industry in that these are decisions that get
    made, and money that changes hand, so there's an immediacy to
    understanding the current risks that a risktaker is assuming.
        And so when people talk of climate change, they will talk
    about the effects of climate change today, and what does the
    industry have to do, and how do they better understand the
    impacts today on farms and businesses, or consumers? And then
    what is the impact over 20, 30, 40, years which gets harder to
    assess if you are in our seat.
        Senator Braun. Well in the short run, where the rubber
    meets the road, are premiums covering the amount of risk out
    there, and being able to pay the claims in a sustainable way?
        Mr. Andersen. So the short answer is no.
        Senator Braun. And how long has that been the case?
        Mr. Andersen. I would say over the last four to five years
    based on the losses that have come through the industry, the
    confidence of the capital providers that they have a full
    understanding of the risks that they are taking has been
    weakening over time.
        And so, this year in particular, was a pretty dramatic
    repricing of risk that happened in the reinsurance industry
    that is now coming through to the insurers, and then ultimately
    to the consumers. They don't trust the models. They don't quite
    understand what the impacts are going to be.
        And since these contracts happen today, and they deal with
    issues of today, their focus is today, and what are the impacts
    financially. But ultimately they do recognize that they need a
    truer sense of risk and the changing nature of it in order to
    attract the capital that they need to perform.
        Senator Braun. Are you spreading that risk over a broader
    segment than just the places that seem to have the highest
    claims?
        Mr. Andersen. Absolutely. I mean the whole nature of the
    business is to diversify it across various financial pools of
    capital over time as well, so not just location, but time.
        Senator Braun. So everybody will pay the price, even for
    something that might be localized or regional?
        Mr. Andersen. Yes.
        Senator Braun. Anybody else want to weigh in?
        Mr. Theodorou. Senator Braun, to the first part about the
    difficulties in pinpointing what will be the amount of the
    losses and when, it is difficult indeed because actuarial
    science is mainly backward looking. Now we're talking about a
    moving target because the exposure level is changing, and I
    guess there are models, as Mr. Andersen mentioned, but it said
    that all models are wrong, but some are useful.
        So we know that directionally it is getting worse, but we
    do have to do something. And to your point on mitigation and
    resilience, that's really where the industry is going because
    once you do have better behavior you don't have buildings on
    the coasts, and the flood plains, that will send a signal--a
    price signal, when there are losses and the rates go up for
    people not to build in ways that exacerbate the risk.
        So you have the positive incentive for product price
    signals.
        Senator Braun. Mr. Chairman, could I have one more brief
    question? So, in the extrapolation of what has been extra
    normal, it sounds like, over the last four to five years, and
    compared to the past when you just have weather incidents that
    were more sporadic, is the insurance industry now extrapolating
    based upon a new model that's based on what has had some
    consistency over at least the last four or five years, or are
    you still waiting to do that to where you'd fully price the
    risk into your premiums?
        Mr. Theodorou. The models are recalibrated on a regular
    basis, so the industry is not sitting on outdated models that
    don't take into account what's happening in California, and in
    other parts of the country. So they're trying to keep up. But
    it's like hitting a moving target because the denominator is
    changing.
        Senator Braun. And in the area of the highest claims will
    this be priced into those localities in a way that that would
    cause the mitigation, maybe not living where whatever the
    climate impact is that's having the greatest effect?
        Mr. Theodorou. It is, because you have many of the national
    insurance companies have separate companies that are focused on
    a particular state.
        Senator Braun. Okay.
        Mr. Theodorou. That's just Florida, for example, which is
    problematic not so much because of catastrophes, but because of
    mitigation which has gotten out of control with 86 percent of
    the nation's homeowners insurance litigation, although Florida
    only has about 7 percent of the nation's homes, so that's a
    separate issue there.
        Dr. Keys. I was just going to very briefly add that I
    think, and thank you for the question. I think one of the
    nuances here is that insurance policies are written on an
    annual basis. We have mortgages that are written on a 30 year
    basis, and we have home ownership decisions, which are written
    maybe on a lifetime basis, or even longer passing on a home in
    a generational way.
        And so, we see the insurance markets responding very
    rapidly because they're repricing.
        Senator Braun. You're the true variable cost in the
    equation.
        Dr. Keys. Exactly. And so they're going to be the ones who
    are most flexible in a lot of ways, and that means that these
    other markets should be taking a lot of signals from what the
    insurance markets are doing.
        Senator Braun. Ms. Watkins did you have?
        Ms. Watkins. You had asked about modeling, and the
    insurance industry is definitely recalibrating their models as
    Mr. Theodorou said. They are also building a track forward into
    the future, looking at different climate scenarios. And so,
    they are becoming able to predict this out in the future, but
    that hasn't historically been a focus.
        These models are also being used by long-term investors,
    and you know, Fannie Mae just had an article where they're
    looking at these models as well. But to your main point,
    mitigating ahead of the calamity I think that was my focus, is
    finding the money, and aligning the stars to start reducing the
    risk, which isn't traditionally in the purview of others.
        Senator Braun. Thank you. I think your industry is going to
    be on that leading edge of what actually takes an amorphous
    conversation into something with a few particularities that we
    can look to, to guide us in the future. Thank you.
        Ms. Watkins. We'd like to be.
        Chairman Whitehouse. Thank you Senator Braun. I will do a
    second round, and I guess I'd like to first start by asking the
    witnesses who are here present in the room, whether any of you
    endorse the proposition that there is nothing going on here
    that is out of the ordinary for climate related risk.
        No, no, no, no. Okay. Do any of you doubt that unusual risk
    is being caused by emissions from fossil fuel combustion? No,
    no, no, no, everybody accepts that that correlation exists,
    okay. Thanks. Miss Curry, I've got a few questions for you if
    you don't mind. First, do you recall how many times you've
    testified before Congress on the subject of climate change?
        Dr. Curry. I'm sorry, I didn't hear the first part of the
    question.
        Chairman Whitehouse. Do you recall how many times you've
    testified before Congress on the subject of climate change?
        Dr. Curry. This would be my 13th time.
        Chairman Whitehouse. Thank you. And on those occasions has
    your message essentially been that there's a lot of
    uncertainty, we don't really know what's driving observed
    warming, the model is unreliable, and the IPCC models are not
    to be trusted?
        Dr. Curry. No. That's not what I would summarize my
    statements as.
        Chairman Whitehouse. All right. Well let's revisit one of
    the previous times that you testified before Congress. In 2014,
    before the Senate Environment and Public Works Committee, and I
    was your interlocutor then. I don't know if you recall that
    among your 13 episodes of testimony.
        But let me prompt you. In your written testimony for that
    hearing you wrote that several key elements of the IPCC's Fifth
    Assessment Report point to your language here, ``a weakening of
    the case for attributing most of the warming to human
    influences relative to the previous assessment.'' And to
    support that, you listed the following assertions.
        The first was a lack of warming since 1998, and growing
    discrepancies between observations and climate model
    projections. The second was sea level rise from 1920 to 1950,
    being of the same magnitude as 1993 to 2012. And the third was
    increasing Antarctic sea ice. Do you recall that?
        Dr. Curry. Yes.
        Chairman Whitehouse. Okay. Let's look at those assertions
    and see how they've aged. And let's start with the alleged lack
    of warming since 1998. Let me propose first that 1998 was an
    exceptionally strong El Nino year, so picking it as a start of
    end date for a period builds in an anomaly. Is that correct?
        Dr. Curry. Yes. Do you want me to explain my perspective on
    the----
        Chairman Whitehouse. I'll give you time at the end, but I'd
    like to get to my questions to you first if I may. So, is it
    true that the last years 2015 to 2022 have been the eighth
    warmest years on record? Is that true?
        Dr. Curry. Yes. Yes.
        Chairman Whitehouse. That is true. So is it still your
    testimony that there actually is a lack of warming?
        Dr. Curry. There is if you read the fine print in my 2014
    testimony, my main point was that there was a great deal of
    natural internal variability that influences this decadal
    scale----
        Chairman Whitehouse. It was you who used the phrase lack of
    warming, and I'm asking if you would still describe what's
    going on as a lack of warming?
        Dr. Curry. No. We've seen a big super mega El Nino in 2016,
    which remains the high point, and since 2016 we haven't seen
    any----
        Chairman Whitehouse. Lack of warming.
        Dr. Curry. Increases beyond 2016.
        Chairman Whitehouse. So let's go to your next point about
    modeling discrepancies, that there are growing discrepancies
    between observations and climate model predictions. I'd like to
    show you a review that was done of models that were run by the
    IPCC back in 2004. And for those of you who are not familiar
    with the graph, the blue part defines the range of the
    different models that were run for the IPCC.
        And the black line that runs through the middle of that
    range is the mean of those models. And the red goes back and is
    actually observed temperature information, so the first two,
    the blue and the black are the prediction range and the
    prediction mean, and the red is what actually happened.
        And it strikes me that it looks like it's tracked pretty
    well, so let me ask you Dr. Curry, is it still your testimony
    that climate modeling has not proven accurate?
        Dr. Curry. Okay. This is the diagram you are showing is a
    flawed analysis. Let's pay attention to what the most recent
    IPCC assessment report has to say. They found a number of
    global climate models running too hot. In fact they even
    changed their way of making projections for the 21st Century
    that relies less on climate models.
        Chairman Whitehouse. Dr. Curry, doesn't the blue range
    imply that there are some models that ran too hot, but also
    others that ran too cold, and that's why there's a range?
        Dr. Curry. Yeah. On average. On average.
        Chairman Whitehouse. Got it. Thank you. And then the
    average is the mean, which is the black line, which tracks
    extremely well with the red data.
        Dr. Curry. That particular graph that you have is a flawed
    analysis.
        Chairman Whitehouse. Okay. Well let me go on. You disagree
    with the analysis, I get it.
        Dr. Curry. The assessment report I should say.
        Chairman Whitehouse. You talk also that there's been no
    increase in sea level rise rate. According to IPCC sea level
    rise has more than doubled from the 1901 to 1990 period, to the
    1993 to 2015 period, and that since 2015 it has accelerated
    further beyond the doubling. Do you dispute those
    determinations?
        Dr. Curry. The point I made in my 2014 testimony is that
    there is a great deal of multi-decadal variability in sea level
    wise, which we saw a sharp increase in the first half of the
    20th Century. I'm not saying that sea level wise isn't
    increasing.
        Chairman Whitehouse. Okay.
        Dr. Curry. I'm not saying.
        Chairman Whitehouse. Are you saying that this rate of seal
    level rise is not increasing? Or do you consider that both seal
    level rise is increasing, and the rate of seal level rise is
    also increasing?
        Dr. Curry. It depends on the time scale you look at, and
    the causes that you attribute to it. It's yes it has been----
        Chairman Whitehouse. I'm talking the history of the
    industrial revolution, the period in which emissions have begun
    to have an effect. I'm not talking about paleo history.
        Dr. Curry. Okay. Sea level rise, the modern sea level rise
    started increasing in about the mid-19th Century. This is
    coming out of the little ice age, and at that point had little
    to do with fossil fueled warming.
        Chairman Whitehouse. Is that still the case today, or does
    it now have to do with fossil fuel warming?
        Dr. Curry. Fossil fuel warming is certainly contributing to
    the slow creep of sea level rise. I've never questioned that.
        Chairman Whitehouse. Okay. And you say it's a slow creep,
    but it's also an accelerating upward rise is it not?
        Dr. Curry. The how to infer acceleration in sea level rise
    is disputed among experts.
        Chairman Whitehouse. Okay. You've accused the IPCC of
    corruption. Do you stand by that term?
        Dr. Curry. The IPCC is a highly politicized organization.
    The recent synthesis and assessment report for the Sixth
    Assessment that was just released this week, I mean that is a
    very highly politicized.
        Chairman Whitehouse. Do you stand by the very use of the
    term corruption regarding the IPCC?
        Dr. Curry. It has to be qualified as a highly politicized
    organization.
        Chairman Whitehouse. How about the IPCC's definition of
    anthropogenic climate change being a hoax? Do you stand by that
    term?
        Dr. Curry. I've never used--I've never used those words.
        Chairman Whitehouse. Okay. let me take you into the--I'm
    actually reading off a blog. ``With these definitions in mind,
    here are two examples that qualify as hoaxes that I've
    previously written about. The UNFCCC definition of climate
    change arguably qualifies as a hoax.'' So I refer you to that,
    and with unanimous consent we'll make that a part of the
    record.\8\
    ---------------------------------------------------------------------------
        \8\ Document submitted by Chairman Whitehouse appears in the
    appendix on page 209.
    ---------------------------------------------------------------------------
        Dr. Curry. Do you want me to clarify that statement?
        Chairman Whitehouse. I think it needs a lot of
    clarification indeed. And I'll let you clarify it for the
    record. Okay. We have a--you'll have all the time in the world
    to write whatever you want, and add that in a response to the
    record. So let's look for a moment at the other models if the
    IPCC is potentially corrupt, and if it's definition as hoax.
    Exxon----
        Dr. Curry. The IPCC--can I clarify before we go much
    further? The IPCC--the UN framework convention on climate
    change now defines climate change to be only human caused
    climate change. The definition does not include natural climate
    variability, and this flies in the face of all the
    understanding of geology, of atmospheric science, and all the
    other scientific fields.
        It's a political definition.
        Chairman Whitehouse. Fair enough. And if you want to expand
    on that you're welcome to do so in your response for the
    record. But let me take my time here and show you the graph
    that Exxon scientists developed to model climate change, both
    CO2 concentration, and observed temperature change.
        And for those of you not familiar with the graph, the
    original black lines are the ones that are developed by the
    Exxon scientists. The blue line is the actual measurements, and
    the red line is the actual measurements. The blue being CO2
    concentration, and the red being observed temperature.
        Do you concede that Exxon's models prove to be pretty
    accurate just like the IPCC models?
        Dr. Curry. No. That model is a toy model that Exxon used,
    and----
        Chairman Whitehouse. All right.
        Dr. Curry. It's a useful contribution to the dialogue.
        Chairman Whitehouse. In 1968 the American Petroleum
    Institute commissioned a report on climate change from
    scientists at Stanford. And those scientists concluded, I'll
    read from the report language here, ``Significant temperature
    changes are almost certain to occur by the year 2000, and these
    could bring about climate change.
        If the earth's temperature increases significantly, a
    number of events might be expected to occur, including the
    melting of the Antarctic ice cap, a rise in sea levels, warming
    of the oceans. It is clear that we are unsure as to what our
    long lived pollutants are doing to our environment, however
    there seems to be no doubt that the potential damage to our
    environment could be severe.''
        Do you doubt the scientists hired by the American Petroleum
    Institute, or their statement?
        Dr. Curry. Our knowledge of climate change was in its
    infancy in the 1960's. The first assessment report by the IPCC
    published in 1990 or 1991, found that there was no evidence of
    human cause warming beyond natural climate variability at the
    time of the early 1990's.
        Chairman Whitehouse. So the API scientists got it wrong too
    when they presented that conclusion?
        Dr. Curry. No. They had a weakly justified argument, and a
    weak knowledge base at the time.
        Chairman Whitehouse. And events have proven them wrong in
    some fashion do you believe?
        Dr. Curry. It's not something that's useful. So it's not
    something that's useful.
        Chairman Whitehouse. Okay.
        Dr. Curry. To consider at this point.
        Chairman Whitehouse. So the other thing you cited was
    increasing Antarctic sea ice. And the last eight years have
    seen below average summer minimum ice for the Antarctic, with
    this year being a record low. Do you still stand by the
    proposition that Antarctic seal ice is increasing?
        Dr. Curry. There's a great deal of interannual and decadal
    scale variability. The IPCC does not make any assessment that
    human caused warming is contributing with confidence to a
    change in the Antarctic sea ice beyond natural climate
    variability.
        Chairman Whitehouse. But do you think that the Antarctic
    sea ice was increasing, just as a measurement. Is that still
    correct?
        Dr. Curry. There's like I said, there's a great deal of
    year to year and decadal variability in the Antarctic sea ice,
    which is what I was commenting on.
        Chairman Whitehouse. Okay. Let me refer you back to an
    article that you wrote in the Washington Post in 2007, and I'll
    read your words then. ``If the risk is great, then it may be
    worth acting against, even if its probability is small. Think
    of risk as a product of consequences and likelihood. What can
    happen, and the odds of it happening. A 10 degree rise in
    global temperatures by 2100 is not likely, the panel gives it a
    3 percent probability.
        Such low probability high impact risks are routinely
    factored into analysis, and management strategy.'' And I'll
    interrupt your quote to say probably by the kind of folks who
    are here sitting in the room with me today, the experts and the
    executives of major risk bearing enterprises.
        ``Whether on Wall Street, or at the Pentagon,'' you
    continue. ``The rationale for reducing emissions of cardon
    dioxide is to reduce the risk of the possibility of
    catastrophic outcomes, making the transition to cleaner fuels
    has the added benefit of reducing the impact on public health
    and ecosystems, and improving energy security, providing
    benefits even if the risk is eventually reduced.
        I have yet to see any option that is worse than ignoring
    the risk of global warming and doing nothing.'' Has your view
    changed since that 2007 article?
        Dr. Curry. My notions of risk for naive circa 2007, in the
    intervening time I have educated myself very substantially in
    risk sciences. And I have a book in press entitled Climate
    Uncertainty and Risks that has been extensively reviewed, peer
    reviewed, by an academic press.
        And that book outlines my current understanding of how we
    should think about climate risk. Some of my understanding I was
    able to include in my written testimony submitted to this
    Committee.
        Chairman Whitehouse. In 2014, I asked you if you thought
    there was real risk from climate change, and should we figure
    out how to deal with it, and you replied, ``We may decide to do
    nothing and see what happens.'' Do you still recommend that
    strategy?
        Dr. Curry. I never--I didn't recommend that strategy. I
    said that is an option.
        Chairman Whitehouse. Do you still consider it to be a
    realistic or plausible or prudent option?
        Dr. Curry. I think we should actively work to adapt to
    extreme weather events and sea level rise. I think we should--I
    think we need new energy infrastructure for the 21st Century,
    with more abundant, cleaner, more reliable energy.
        Chairman Whitehouse. And in your testimony here today you
    suggest that one of the things that can save us from climate
    change, and reduce the risk is volcano eruptions. Is that
    correct?
        Dr. Curry. No. I'm saying that climate models do not
    include severe--simulations for the 21st Century do not include
    scenarios of extreme explosive volcanic eruptions, such as
    occurred in the early 19th Century. If those were to occur, we
    could see a half a degree Centigrade cooling over several
    decades.
        The point of that is to emphasize that natural climate
    variability can be very substantial, and this isn't properly
    taking into account in our considerations of how the climate
    might play out in the 21st Century. That's the point that I'm
    making.
        Chairman Whitehouse. Let me close out with a question for
    the witnesses who are here in the room. And that is to offer
    your view on the diligence, integrity and reliability of the
    modeling that you count on in doing your planning and
    projections. Starting, I guess, with Mr. Andersen, we'll go
    across the four of you and conclude the hearing.
        Mr. Andersen. That's a great question. I would say one of
    the special things about the models that the insurance industry
    uses is that it actually money changes hands over the
    interpretation of those models. So the confidence around them,
    and the need for those models to be as up to date and
    insightful is critical.
        Chairman Whitehouse. It's a powerful incentive to get it
    right.
        Mr. Andersen. To get it right. So, I think it's a, you
    know, as I think Mr. Theodorou said, it is something that we
    are continuing to work on as new information becomes available
    because it has--it moves markets, and so it's critical that we
    continue to improve it.
        Chairman Whitehouse. Ms. Watkins?
        Ms. Watkins. The risks that we're modeling are complicated,
    and so the models need to be complicated to be useful. They
    don't agree. They do evolve. The question is can they be used
    safely and appropriately, and that does require expertise, and
    I think that upping the level of expertise in terms of risk
    aware, climate aware planning, is going to help an awful lot in
    demystifying these models.
        Chairman Whitehouse. But you count on the models and
    they're valuable to use in doing the planning and the work that
    you do.
        Ms. Watkins. They're definitely a state of the art for
    actuaries in getting the risk accurately priced and evaluated,
    and that's what we do.
        Chairman Whitehouse. Yeah. And one of the reasons that this
    is a difficult enterprise is because things are in fact
    changing, is that not the problem.
        Ms. Watkins. That's right. But we are trying to use the
    models to evaluate what the changes are and what that means for
    the potential outcomes.
        Chairman Whitehouse. Dr. Keys?
        Dr. Keys. Thank you for the question Senator. The data that
    we use as researchers often comes from the government, and
    we're especially thankful for the scientists at NOAA, and
    elsewhere who make their data available, and make regular
    improvements to their data. So they're doing outstanding work.
        I think there is room for improvement in terms of sharing
    data between the private sector and the public sector, and
    understanding what the difference is, or discrepancies might be
    between the different models. I think there's also a role for
    the democratization of this data to make it more accessible to
    households, so that they can better understand the risks they
    face.
        I think one of the asymmetries is that the insurance
    markets often know a lot more about the risks than the
    households or the businesses do.
        Chairman Whitehouse. Mr. Theodorou, reliability of models?
        Mr. Theodorou. Thank you Chairman Whitehouse for the
    question. The modeling industry has really advanced by leaps
    and bounds since it was essentially borne in 1992 in the wake
    of Hurricane Andrew. And since that time there have been three
    main models that are used and licensed by risk practitioners.
        Typically, large insurers and reinsures use all three, and
    they may have their own proprietary as a fourth model, which
    has now entered the fray.
        Chairman Whitehouse. And Mr. Andersen is correct that a lot
    of money rides on getting it right, in addition to potential
    fiduciary reliability if you really blow it. Correct?
        Mr. Theodorou. Yeah. Licensing in the models is not an
    inexpensive proposition. So, as I said earlier, they're not
    capable of getting a point estimate exactly, how much loss are
    we going to have at this particular time, but directionally is
    what we look at to give the headlights into where we're going.
        Chairman Whitehouse. I love hearing you use the word
    headlights. That's my phrase. I say science is the headlights
    that drives us forward, and let's us see what's coming. And
    with that let me call the hearing to an end. I thank you all
    for your testimony. I want to state that questions for the
    record from colleagues are due by noon tomorrow.
        And we ask the witnesses to respond to any questions that
    they may receive within 7 days of receipt. And in addition to
    responding to any questions received by or for Professor Curry,
    the opportunity to elaborate on her answers to my questioning
    in any way that she sees fit, so she feels she's had a full and
    fair chance to respond.
        And with that the hearing is concluded. Thank you.
        [Whereupon, at 11:51 a.m., Wednesday, March 22, 2023, the
    hearing was adjourned.]
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