Science

Fixing A Broken National Flood Insurance Program: Risks And Potential Reforms

Fixing A Broken National Flood Insurance Program: Risks And Potential Reforms

June 2012

by Dan Huber

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Read the related blog post


The National Flood Insurance Program (NFIP) insures 5.6 million American homeowners and some $1 trillion in assets. For many years, however, the premiums collected have not been sufficient to cover losses, resulting in a current debt to the U.S. Treasury of more than $18 billion. A number of factors, including increased flooding as a result of climate change, are likely to further widen the gap between revenue and risk. Reforms are needed to put the NFIP on the path to solvency and to reduce homeowners’ exposure to chronic and catastrophic flooding risk. Ideally, such reforms should fully account for the increased risks posed by climate change. At a minimum, steps are needed to adjust premiums, improve flood mitigation measures, and prepare for the catastrophic risk of events like Hurricane Katrina. 
 

Introduction

With government budgets still reeling from the effects of the recent recession, and ongoing debates over the future costs of Medicare and Social Security, unfunded public liabilities are of growing concern. The National Flood Insurance Program (NFIP) is one such liability that is often overlooked. The NFIP is already significantly in debt due to premiums that have not reflected the true risk of flood damages. Looking forward, the risk of further losses only increases, as demographic trends place more infrastructure in harm’s way, watersheds are developed and climate change increases flood risk over time.[1]

This paper explores the structural issues underlying the growing gap between flood insurance premiums and actual flood risk. It also examines reforms that can put the program on a more sound financial footing and the incentives needed to reduce the potential costs of future flooding. A report by the American Enterprise Institute found that insurers have “a huge opportunity today to develop creative loss-prevention solutions.” [2] Using both adaptive and financial tools to manage the rising risks posed by climate change will be critical to preventing losses and maintaining the insurability (and therefore property values) of trillions of dollars in at-risk property assets.

Between 1980 and 2005, U.S. insurers paid out a total of $320 billion in weather-related insurance claims.[3] While not all weather-related claims are flood claims, losses from weather events are increasing.[4] Today, the NFIP covers over $1.2 trillion in assets, representing more than a fourfold increase since 1980.[5] If providing this coverage is to remain affordable, Congress must provide FEMA with the tools to accurately price and manage risk.
 

References

1. Kousky and Kunreuther, (2010, March 1). Improving Flood Insurance and Flood-Risk Management: Insights from St. Louis, Missouri. Natural Hazards Review, Vol. 11.

2. Kunreuther and Michel-Kerjan, (2009, January 15). Market and Government Failure in Insuring and Mitigating Natural Catastrophes: How Long-Term Contracts Can Help. Washington D.C., USA: American Enterprise Institute Conference on Private markets and Public Insurance Programs

3. Stephenson, John B., (2007). Financial Risks to Federal and Private Insurers in the Coming Decades Potentially Significant. Washington D.C., USA: United States Government Accountability Office

4. Kunreuther and Michel-Kerjan, Market and Government Failure in Insuring and Mitigating Natural Catastrophes: How Long-Term Contracts Can Help. Op. Cit.

5. Michel-Kerjan, Forges and Kunreuther, (2011). Policy Tenure Under the U.S. National Flood Insurance Program (NFIP). Risk Analysis. 

 

Daniel Huber
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Hot Weather Springing Up in 2012

The U.S. has just come through the warmest spring on record—indeed, the warmest 12-month stretch since record-keeping began.

With headlines like “Warmest spring heats up economy,” readers weary of bad economic news might be forgiven for thinking that a little global warming is not such a bad thing. But the warming we’ve experienced globally over the past 30 years is more than “a little.” And in the U.S., it’s likely contributing to drought and wildfires in the West and more extreme weather nationwide.  

This past May came in as the second warmest on record globally, trailing only May of 2010. For land area only, it was the warmest on record, at 2.18 degrees F above average. It was also the 36th consecutive May, going back to 1976, with global temperatures above the 20th-century average.  

Bringing Lessons in Low-carbon Innovation to Rio+20

Opportunities for low-carbon innovation are growing, driven by policy changes, market shifts, and continued growth in energy demand, particularly in developing countries. This Sunday in Rio de Janeiro, ahead of the UN’s “Rio+20” Conference on Sustainable Development, C2ES will have a chance to share what it’s learned about low-carbon innovation with partners from around the world.

With the Global Environment Facility (GEF), we will convene a panel of companies (Johnson Controls, DuPont), small-business innovators (from the Cleantech Open), and government and business representatives (from UNIDO and ABDI) to share stories and lessons from the front lines of clean-tech entrepreneurship. The event, to be held at the U.S. Center pavilion, will examine the keys to successful low-carbon innovation, and the benefits for climate mitigation and adaptation, energy security, resource efficiency, and job creation.

Evaluating Corporate Influence on the Climate Debate

Last week, the Union of Concerned Scientists released a new report, A Climate of Corporate Control: How Corporations Have Influenced the U.S. Dialogue on Climate Science and Policy. It’s an important topic, as we know there are professional merchants of doubt whose sole purpose is to exaggerate scientific uncertainty on environmental issues where in fact the science is quite clear. As the report points out, we have seen this time and again with topics such as tobacco, leaded gasoline, SO2, asbestos, DDT, and now climate change. 

Here’s how the authors describe their aim: “…Ultimately, we seek a dialogue around climate science and policy that prioritizes peer-reviewed scientific information over the agendas of specialized interest groups.” That’s a goal we at C2ES certainly share. And toward that end, we’d encourage a somewhat more nuanced and realistic perspective on how companies behave and why. Let me explain.

Report Highlights Climate Change Risks to Key Gulf Coast Industries

Press Release
June 6, 2012

Contact: Rebecca Matulka, 703-516-4146, matulkar@c2es.org

 

Report Highlights Climate Change Risks to Key Gulf Coast Industries
Recommends Steps to Reduce Impacts on Region’s Energy and Fishing Sectors 

Climate change is already having major impacts on the Gulf Coast region and action is needed to protect its vital industries from the likely impacts of continued warming, according to a new report from the Center for Climate and Energy Solutions (C2ES).

The report, Impacts and Adaptation Options in the Gulf Coast, examines the risks that climate change poses to the region’s energy and fishing industries, and to its residents and local governments. It concludes that climate impacts are already being felt across these sectors, and outlines measures that can be taken to adapt to the growing risks, reducing the region’s vulnerability and the costs associated with future impacts.

The convergence of several geographical characteristics—an unusually flat terrain both offshore and inland, ongoing land subsidence, dwindling wetlands, and fewer barrier islands than along other coasts—make the Gulf Coast region especially vulnerable to climate change. Among the impacts and risks cited in the report:

  • Over the past century, both air and water temperatures have been on the rise across the region;
  • Rising ocean temperatures heighten hurricane intensity, and recent years have seen a number of large, damaging hurricanes;
  • In some Gulf Coast locations, local sea level is increasing at over ten times the global rate, increasing the risk of severe flooding; and
  • Saltwater intrusion from rising sea levels damages wetlands, an important line of coastal defense against storm surge and spawning grounds for commercially valuable fish and shellfish.

“Nowhere else in the U.S. do we see the same convergence of critical energy infrastructure and high vulnerability to climate change,” said C2ES President Eileen Claussen. “These risks are not borne by the Gulf Coast alone. A major energy supply disruption, for instance, would be felt nationwide. We must respond on two fronts: We have to work harder to reduce the greenhouse gas emissions causing climate change. And we must take steps, in the Gulf Coast and elsewhere, to prepare for the impacts that can’t be avoided.”

The report’s lead author is Hal Needham, a researcher at Louisiana State University’s Southern Climate Impacts Planning Program (SCIPP) and an expert on hurricane storm surges in the Gulf Coast. The co-authors are David Brown, an assistant professor in LSU’s Department of Geography and Anthropology, and Lynne Carter, associate director of SCIPP.

In their analysis of the Gulf Coast’s energy industry, which comprises about 90 percent of the region’s industrial assets, the authors found significant risks from hurricanes, sea level rise, rising temperatures and drought. The report noted the considerable damage the energy industry sustained from recent hurricanes in 2004, 2005 and 2008.  Thirty percent of the nation’s refineries are located in Texas and Louisiana, and Louisiana Offshore Oil Port in Port Fourchon is the country’s only deep-water oil import facility. At its current elevation, Louisiana Highway 1, the only access to the port, is projected to be flooded 300 days a year by 2050.

For the region’s other major industry, fishing, the report details major infrastructure risks, especially relating to coastal docking and fish processing. Fish and shellfish populations are also vulnerable to climate impacts, with a combination of warmer water, ocean acidification, and excessive runoff from the Mississippi River combining to increase the risk of large-scale changes in the Gulf ecosystem.

The authors emphasize that advance planning can reduce the region’s vulnerability and the costs incurred from future climate impacts.

For the energy sector, adaptation strategies include learning from recent hurricanes to more rigorously assess vulnerabilities; strengthening design standards for drilling platforms and other infrastructure; and undertaking projects such as the planned raising of sections of Highway 1 to Port Fourchon. To reduce vulnerability in the fishing industry, options include strengthening docking facilities and other infrastructure subject to storm surges, and limiting fertilizer use upstream on the Mississippi River to reduce the incidence of hypoxia (oxygen-starved waters) in the Gulf.

“Climate change is already taking a toll on the Gulf Coast, but if we act now to become more resilient, we can reduce the risks, save billions in future costs, and preserve a way of life,” said Needham. “The Gulf Coast is one of the first regions to feel the impacts of climate change. It only makes sense to be a first mover on climate adaptation as well.”

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About C2ES
The Center for Climate and Energy Solutions (C2ES) is an independent non-profit, non-partisan organization promoting strong policy and action to address the twin challenges of energy and climate change. Launched in November 2011, C2ES is the successor to the Pew Center on Global Climate Change, long recognized in the United States and abroad as an influential and pragmatic voice on climate issues. C2ES is led by Eileen Claussen, who previously led the Pew Center and is the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

 

Impacts and Adaptation Options in the Gulf Coast

Impacts and Adaptation Options in the Gulf Coast

June 2012

by Hal Needman, David Brown, and Lynne Carter

Download the full report (PDF)

Press Release

Press briefing (mp3)

 

Introduction

The central and western U.S. Gulf Coast is increasingly vulnerable to a range of potential hazards associated with climate change. Hurricanes are high-profile hazards that threaten this region with strong winds, heavy rain, storm surge and high waves. Sea-level rise is a longer-term hazard that threatens to exacerbate storm surges, and increases the rate of coastal erosion and wetland loss. Loss of wetlands threatens to damage the fragile coastal ecosystem and accelerates the rate of coastal erosion.

These hazards threaten to inflict economic and ecological losses in this region, as well as loss of life during destructive hurricanes. In addition, they impact vital economic sectors, such as the energy and fishing industries, which are foundational to the local and regional economy. Impacts to these sectors are also realized on a national scale; Gulf oil and gas is used throughout the country to heat homes, power cars, and generate a variety of products, such as rubber and plastics, while seafood from the region is shipped to restaurants across the country.

This report reviews observed and projected changes for each of these hazards, as well as potential impacts and adaptation options. Information about the scale and relative importance of the energy and fishing industries is also provided, as well as insight into potential vulnerabilities of these industries to climate change. This report also identifies some adaptation options for those industries.

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The Causes of Global Climate Change

The Causes of Global Climate Change

June 2012

Download the fact sheet (PDF)

During the twentieth century, the earth’s surface warmed by about 1.4 °F. There are a variety of potential causes for global climate change, including natural and human-induced mechanisms. Science has made great strides recently in determining which potential causes are responsible for the climate change that occurred during the twentieth century, providing strong evidence that greenhouse gases released to the atmosphere by human activities are the main cause of contemporary global warming.

 

 

 

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Climate Change's Impact on International Arctic Security

This blog post is cross-posted on the Center for New American Security's National Security blog.

Today we released a new report today titled Climate Change & National Security: The Arctic as a Bellwether. The lead author of the report is Dr. Rob Huebert, Associate Director of the Centre for Military and Strategic Studies at the University of Calgary. 

Official military doctrine in the United States now holds that “climate change, energy security, and economic stability are inextricably linked.” Nowhere is this linkage more clearly illustrated than in the Arctic, and that’s why we think the region is a bellwether for how climate change may reshape global geopolitics in the post-Cold War era. 

As the planet has warmed over the past few decades, temperatures in the Arctic have been increasing at about twice the global rate. And the Arctic sea ice cover has been shrinking much faster than scientists anticipated. The five smallest sea ice covers ever recorded have all occurred in the past five summers. As a result, the Northwest Passage through the Canadian Archipelago has opened up every summer since 2007, and the Northeast Passage along Russia’s coastline has opened up every summer since 2008.

New Analysis Finds Climate Change Is Driving New Security Concerns In The Arctic

Press Release
May 1, 2012

Contact: Rebecca Matulka, 202-701-5032, matulkar@c2es.org

 

New Analysis Finds Climate Change Is Driving New Security Concerns In The Arctic

Report Calls for Stronger Multilateral Mechanisms to Avert Potential Conflicts


Arctic melting driven by climate change is reshaping the geopolitics of the far North, and as governments respond with steps such as rebuilding their military capabilities, multilateral mechanisms must be strengthened to head off potential conflicts, according to a new analysis released today by the Center for Climate and Energy Solutions (C2ES).

The report, Climate Change and International Security: The Arctic as a Bellwether, examines a recent spate of Arctic-related announcements and actions by circumpolar states, including the United States, Canada, Russia and several European countries. The emerging security issues in the Arctic, it concludes, could foreshadow climate change’s broader influence on geopolitics globally in the post-Cold War era.

Temperatures are rising in the Arctic at about twice the global rate, and the decline in summer sea ice over the past decade is outpacing scientists’ projections. The rapid melting is driving increased interest in new and expanded shipping routes, oil and gas exploration, and Arctic fisheries.  In the five years since Russia planted its flag at the North Pole, Arctic states have issued a string of major policy announcements and begun reassessing and rebuilding their military capabilities in the region.

“The repositioning we see in the Arctic clearly demonstrates that climate change presents not only huge environmental and economic challenges, but national security challenges as well,” said C2ES President Eileen Claussen, formerly Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs and Senior Director for Global Environmental Affairs at the National Security Council. “These emerging Arctic issues are unfortunately just a preview of the kinds of security challenges we’ll see more of as the world warms.”

The analysis was led by political scientist Rob Huebert, associate director of the Center for Military and Strategic Studies at the University of Calgary. Huebert’s coauthors were Heather Exner-Pirot of the University of Saskatchewan, Adam Lajeunesse of the University of Calgary, and Jay Gulledge, senior scientist and director of the science and impacts program at C2ES. Heubert is presenting the report today at the Arctic Forum portion of the American Geophysical Union’s Science Policy Conference 2012.

In their analysis of countries’ announcements and actions since 2008, the report’s authors found that while all support the goal of maintaining cooperative relations in the region, several have also made clear that they intend to defend their national interests there if necessary. 

In policy statements, as well as multilateral actions and agreements, the Arctic countries have demonstrated a sincere desire for the region to be developed cooperatively and peacefully, the report says. For example, in the 2008 Ilulissat Declaration, the five coastal Arctic states—Canada, Denmark, Norway, Russia, and the United States—agreed to settle any territorial disputes under accepted principles of international law as they seek to extend their claims to Arctic territory.

On the other hand, the authors note, some countries are rebuilding military forces far beyond “constabulary” needs, such as policing waterways, and others are drawing up plans to. For example, Russia plans to build several new nuclear-powered submarines for fast attack or nuclear missile launch missions, and the Norwegian Air Force has announced plans to acquire 48 F-35 Joint Strike Fighters. “Consequently,” the report says, “if political cooperation in the region should sour, most of the Arctic nations will have forces that are prepared to compete in a hostile environment.”

One potential source of tensions is access to shipping routes through the Northwest Passage, through the Canadian archipelago, and the Northeast Passage, along Russia’s coast. While the United States views freedom of the seas for navigation as a core interest in the Arctic, Canada and Russia, each with vastly more Arctic coastline than the United States, put stronger emphasis on territorial sovereignty.

To keep relations from veering toward conflict, the report calls for countries to move quickly to strengthen existing multilateral mechanisms. As a first step, it recommends that the Arctic Council, which includes all of the Arctic states, reconsider its existing prohibition on discussing military security issues. Otherwise, it warns, smaller groupings may emerge, and countries left out may feel threatened.

As another example, the report cites support by the Department of Defense for U.S. ratification of the Law of the Sea treaty, which provides a framework for resolving issues such as the delimitation of the continental shelf in the Arctic.

“The Arctic is a true bellwether on climate-related security issues,” said lead author Huebert. “Arctic states should act quickly to reinforce multilateral mechanisms before resource competition and core national interests take center stage. And other countries should watch closely to learn from our successes or failures in managing this new breed of security challenge.”

 

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About C2ES
The Center for Climate and Energy Solutions (C2ES) is an independent non-profit, non-partisan organization promoting strong policy and action to address the twin challenges of energy and climate change. Launched in November 2011, C2ES is the successor to the Pew Center on Global Climate Change, long recognized in the United States and abroad as an influential and pragmatic voice on climate issues. C2ES is led by Eileen Claussen, who previously led the Pew Center and is the former U.S. Assistant Secretary of State for Oceans and International Environmental and Scientific Affairs.

 

 

 

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