The key scientific assessments we reviewed generally  found that warmer temperatures are expected to alter the frequency or  severity of damaging weather-related events, such as flooding or drought,  although the timing, magnitude, and duration of these changes are as yet  undetermined. Additional research on the effect of increasing temperature  on weather events is expected in the near future. Nevertheless, research  suggests that the potential effects of climate change on damaging weather- related events could be significant. The earth warmed by roughly 0.74 degrees Celsius over the past 100 years,  and is projected to continue warming for the foreseeable future. Several key assessments of the state of this science have  addressed the large body of work on this topic. Insured Weather- Related Losses Have Been Sizeable, and Federal Insurers’ Exposure Has Grown Significantly

Taken together, insurers paid more than $320 billion in claims for weather- related losses between 1980 and 2005. Claims varied significantly from  year to year—largely due to the effects of catastrophic weather events  such as hurricanes and droughts—but generally increased during this  period. The growth in population in hazard-prone areas, and consequent  real estate development and increasing real estate values, have generally  increased insurers’ exposure to weather-related events and help to explain  their increased losses. Nonetheless, major private and federal  insurers are responding to this prospect differently. Many large private  insurers are incorporating some elements of near-term climate change into  their risk management practices. Major Federal Insurers Have Taken Little Action to Prospectively Assess Potential Increases in Catastrophic Risk Associated with Climate Change

The goals of the major federal insurance programs are fundamentally  different from those of private insurers. NFIP and FCIC are two major federal  programs which, as a consequence of both future climate change and  substantial growth in exposure, may see their losses grow by many billions  of dollars in coming decades. Recommendation for Executive Action

We recommend that the Secretary of Agriculture and the Secretary of  Homeland Security direct the Administrator of the Risk Management  Agency and the Under Secretary of Homeland Security for Emergency  Preparedness to analyze the potential long-term implications of climate  change for the Federal Crop Insurance Corporation and the National  Flood Insurance Program, respectively, and report their findings to the  Congress. Appendix I: Scope and Methodology

We were asked us to (1) describe what is known about how climate  change might affect insured and uninsured losses, (2) determine insured  losses incurred by major federal agencies and private insurers and  reinsurers resulting from weather-related events, and (3) determine what  major federal agencies and private insurers and reinsurers are doing to  assess and manage the potential risk of increased losses due to changes in  the frequency and severity of weather-related events associated with  climate change. PCS obtains its insured loss data from information reported by insurers. Until 1980, the federal crop insurance program was limited to major crops  in the nation’s primary production areas. GAO Comments

1. High-Risk Program.
Why GAO Did This Study

Weather-related events have cost the nation billions of dollars in damages over the past decade. Many of these losses are borne by private insurers and by two federal insurance programs--the National Flood Insurance Program (NFIP), which insures properties against flooding, and the Federal Crop Insurance Corporation (FCIC), which insures crops against drought or other weather disasters. GAO was asked to (1) describe how climate change may affect future weather-related losses, (2) determine past insured weather-related losses, and (3) determine what major private insurers and federal insurers are doing to prepare for potential increases in such losses. In response, among other things, GAO reviewed key scientific assessments; analyzed insured loss data; and contacted private insurers, NFIP, and FCIC.

What GAO Found

Key scientific assessments report that the effects of climate change on weather-related events and, subsequently, insured and uninsured losses, could be significant. The global average surface temperature has increased by 0.74 degrees Celsius over the past 100 years and climate models predict additional, perhaps accelerating, increases in temperature. The key assessments GAO reviewed generally found that rising temperatures are expected to increase the frequency and severity of damaging weather-related events, such as flooding or drought, although the timing and magnitude are as yet undetermined. Additional research on the effect of increasing temperatures on weather events is expected in the near future, including a highly anticipated assessment of the state of climate science this year. Taken together, private and federal insurers paid more than $320 billion in claims on weather-related losses from 1980 to 2005. Claims varied significantly from year to year--largely due to the effects of catastrophic weather events such as hurricanes and droughts--but have generally increased during this period. The growth in population in hazard-prone areas and resulting real estate development have generally increased liabilities for insurers, and have helped to explain the increase in losses. Due to these and other factors, federal insurers' exposure has grown substantially. Since 1980, NFIP's exposure quadrupled, nearing $1 trillion in 2005, and program expansion increased FCIC's exposure 26-fold to $44 billion. Major private and federal insurers are both exposed to the effects of climate change over coming decades, but are responding differently. Many large private insurers are incorporating climate change into their annual risk management practices, and some are addressing it strategically by assessing its potential long-term industry-wide impacts. The two major federal insurance programs, however, have done little to develop comparable information. GAO acknowledges that the federal insurance programs are not profit-oriented, like private insurers. Nonetheless, a strategic analysis of the potential implications of climate change for the major federal insurance programs would help the Congress manage an emerging high-risk area with significant implications for the nation's growing fiscal imbalance.