Report links climate change, federal insurance losses

The Coloradoan
By Bill Theobald
November 19, 2014

WASHINGTON – Climate change could substantially increase losses in taxpayer-backed flood and crop insurance programs in coming decades, according to a new government report.

The Government Accountability Office found that exposure to losses for property insured under the two programs grew by 8 percent to $1.4 trillion over the past six years because of population growth and increased property values in hazard-prone areas.

But the report, released Thursday, says climate change “may substantially increase losses by 2040 and increase losses from about 50 to 100 percent by 2100.”

One study cited by the GAO estimated that because of climate change the annual insurance losses due to hurricanes in 2100 would almost double from 2008, to about $33 billion.

The report was requested by Sen. Michael Bennet, D-Colo., in his role as chairman of the Conservation, Forestry and Natural Resources subcommittee of the Senate agriculture committee. Colorado dealt with devastating flooding last year and ongoing drought, which is most severe in the southeast corner of the state.

“It is yet another example of the expense that's caused by our failing to deal with climate change,” Bennet said of the report’s predictions.

He said the two programs are not sustainable financially as they are now designed.

Others who signed the letter requesting the report were Democratic Sens. Tom Udall of New Mexico; Tom Harkin of Iowa; Jack Reed and Sheldon Whitehouse of Rhode Island; and Democratic Rep. Peter DeFazio of Oregon.

The report says the Risk Management Agency within the Department of Agriculture, which runs the crop insurance program, and the Federal Emergency Management Agency, which runs the flood insurance program, have taken steps to prepare for the impact of climate change.

But it says that the short-term nature of the insurance programs may make it more difficult for federal officials to encourage policyholders to make the changes needed to offset the long-term risk of climate change.

Of the $1.4 trillion in property insured through the two programs in 2013, most of that — $1.3 trillion — was through the flood insurance program.

The report projects climate change may increase losses substantially by 2040 and beyond. An analysis of 20 scientific studies predicted increases ranging from 14 percent to 47 percent in hurricane losses between 2000 and 2040 and 54 percent to 110 percent by 2100.

The risk of flood damage has increased in part because of growth in coastal-area population — 39 percent from 1970 to 2010, according to Census data, creating a population density in coastal areas that is six times greater than inland areas.

The report points out that as of June, FEMA’s debt to the U.S. Treasury from flood insurance payments totaled $24 billion —primarily because of claims paid after Hurricane Katrina in 2005 and Hurricane Sandy in 2012.

In fiscal 2013, there were 2,020 claims resulting in $4.6 million paid to individuals and businesses in Colorado under the federal flood insurance program, according to data from FEMA obtained by Bennet’s office.

The National Flood Insurance program, created in 1968, offers flood insurance to homeowners, renters and business owners if the participating communities agree to take steps to reduce the risk of flooding.

The program was changed by Congress in 2012 to make it more financially sound, in part by raising rates to reflect true flood risk. A backlash over the rate increases caused Congress to pass legislation earlier this year that lowers the rate increases on some policies and prevents some future rate increases.

For agriculture, the report cites research that predicts changes in temperature and precipitation can be offset over the next 25 years by technological advancements, expansion of irrigation and shifts in crop production.

But by mid-century, weather and precipitation extremes could intensify and cause yields and farm profits to decline, despite these adjustments.

“You add up the historic flooding that we've had, the severe drought that we've had, it’s evident on the ground that we’ve got to start creating a policy in environment where we make some progress here, and I am glad the GAO report is able to call attention to the problem,” Bennet said.