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


                                                     S. Hrg. 118-63

                      RISKY BUSINESS: HOW CLIMATE CHANGE IS 
                            CHANGING INSURANCE MARKETS

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                                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                    
          
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                        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

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                       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\
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    \1\ Prepared statement of Chairman Whitehouse appears in the 
appendix on page 33.
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    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\
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    \2\ Prepared statement of Senator Grassley appears in the appendix 
on page 35.
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    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\
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    \3\ Prepared statement of Mr. Anderson appears in the appendix on 
page 37.
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    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\
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    \4\ Prepared statement of Ms. Watkins appears in the appendix on 
page 161.
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    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\
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    \5\ Prepared statement of Dr. Keys appears in the appendix on page 
164.
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    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.
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    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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