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35–525 PDF 2007

S. Hrg. 110–147

DANGEROUS EXPOSURE: THE IMPACT OF GLOBAL

WARMING ON PRIVATE AND FEDERAL INSURANCE

HEARING

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 19, 2007

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

BARACK OBAMA, Illinois 

CLAIRE McCASKILL, Missouri 

JON TESTER, Montana 

SUSAN M. COLLINS, Maine 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire

MICHAEL L. ALEXANDER, Staff Director 

ADAM R. SEDGEWICK, Professional Staff Member 

DAVID G. MCINTOSH, Counsel, Office of Senator Lieberman 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

DAVID E. HUNTER, Minority Professional Staff Member 

ASHA A. MATHEW, Minority Counsel 

JOHN K. GRANT, Minority Professional Staff Member 

TRINA DRIESSNACK TYRER, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Lieberman ........................................................................................... 1

Senator Collins ................................................................................................. 3

Senator Tester .................................................................................................. 18

WITNESSES 

THURSDAY, APRIL 19, 2007

John B. Stephenson, Director, Natural Resources and Environment, U.S. 

Government Accountability Office ...................................................................... 5

Eldon Gould, Administrator, Risk Management Agency, U.S. Department of 

Agriculture ............................................................................................................ 7

Michael Buckley, Deputy Assistant Administrator for Mitigation, Federal 

Emergency Management Agency, U.S. Department of Homeland Security ... 10

Andrew Castaldi, Head, Catastrophe and Perils, Americas Division, Swiss 

Re America Corporation ...................................................................................... 12

ALPHABETICAL LIST OF WITNESSES

Buckley, Michael: 

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 127

Castaldi, Andrew: 

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 131

Gould, Eldon: 

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 120

Stephenson, John B.: 

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 27

APPENDIX 

GAO Report entitled ‘‘Climate Change, Financial Risks to Federal and Private 

Insurers in Coming Decades Are Potentially Significant’’ submitted by Mr. 

Stephenson ............................................................................................................ 47

David R. Conrad, Senior Water Resources Specialist, National Wildlife Federation, prepared statement ................................................................................ 137

Charts submitted for the record from Mr. Gould in response to Senator 

Tester .................................................................................................................... 148

Letter sent to Mr. Gould from Senators Lieberman and Collins, dated May 

2, 2007 ................................................................................................................... 151

Letter sent to Mr. Buckley from Senators Lieberman and Collins, dated 

May 2, 2007 .......................................................................................................... 153

Questions and responses for the record from: 

Mr. Stephenson ................................................................................................. 155

Mr. Gould .......................................................................................................... 159

Mr. Buckley ....................................................................................................... 160

Mr. Castaldi ...................................................................................................... 165

Charts referenced at the hearing by Mr. Stephenson .......................................... 171

(1)

DANGEROUS EXPOSURE: THE IMPACT OF 

GLOBAL WARMING ON PRIVATE AND 

FEDERAL INSURANCE 

THURSDAY, APRIL 19, 2007

U.S. SENATE, 

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 9 a.m., in room SD–

342, Dirksen Senate Office Building, Hon. Joseph I. Lieberman, 

Chairman of the Committee, presiding. 

Present: Senators Lieberman, Tester, and Collins. 

OPENING STATEMENT OF CHAIRMAN LIEBERMAN 

Chairman LIEBERMAN. Good morning and welcome to this hearing where we will examine the human and economic consequences 

of global warming through the eyes of private and Federal programs that insure tens of millions of American property owners, including farmers, against weather-related losses that already result 

in claims totaling billions of dollars a year. 

On April 6, just a few weeks ago, the United Nations Intergovernmental Panel on Climate Change (IPCC) issued a report on the 

impacts that world scientists projected would result from unchecked global warming. Here are some of the impacts that the 

IPCC finds that the United States will experience by the middle of 

this century unless we dramatically reduce our greenhouse gas 

emissions: Warming in Western mountains will decrease the 

snowpack, causing winter flooding, reduced summer flows, and increased competition for already strained water resources; droughts 

and new invasions of insects will kill crops as well as forests, leaving forests even more prone to fires; coastal communities and habitats will be battered by intensified storms, with the damage compounded by more erosion. 

In sum, we are looking at more floods, intensified floods, 

droughts, pestilence, fires, and storms—all carrying dire economic 

consequences. 

In the United States, a significant portion of the economic losses 

from such disasters is covered by private insurance and by two taxpayer-funded programs—the National Flood Insurance Program 

and the Federal Crop Insurance Corporation. 

So it is natural to ask: How are the private insurance industry 

and the Federal Government insurance programs responding to the 

predictions of a sharp increase in financial liability that they will 

2

face as a result of climate changes they may not have anticipated, 

probably did not anticipate, a decade or two ago? How are they responding to the scientific consensus that the increase in weatherrelated loss will accelerate in the decades ahead if global warming 

remains uncontrolled? What effect will this response, or lack of one, 

have on the tens of millions of Americans who rely on insurance 

to protect them from weather-related loss? 

In 2005, Senator Collins and I asked the Government Accountability Office to answer these questions. That report is now complete, and I am pleased to say that John Stephenson is here with 

us as a witness to describe GAO’s findings. I want to highlight 

briefly three specific conclusions that I think are important for all 

of us to understand and face. 

First, storm-related economic losses do not increase on a one-toone ratio as storm strength increases. Rather, the losses increase 

at an exponential rate. For instance, Category 4 storms tend to 

cause 100 times more economic damage, not just four times more, 

than Category 1 storms. In light of the mounting evidence that unchecked global warming will increase the intensity of hurricanes 

and other weather activity, this conclusion has very serious economic consequences. 

Second, one-half to two-thirds of the structures in America’s 

floodplains do not have any flood insurance at all, and nearly 60 

percent of homeowners in our country carry insurance amounting 

to less than the value of their property. So as we discuss potential 

losses to insured property from these weather events, we have to 

keep in mind that those losses represent just a portion of the direct, weather-related economic harm that global warming, if unchecked, threatens our country with. 

Third, the Federal Government has itself grown markedly more 

exposed to weather-related losses since 1980. In that time, for example, the number of policies in the National Flood Insurance Program has more than doubled, and the total value covered by the 

program has increased fourfold. 

GAO believes that the two Federal insurance programs it examined could see their losses grow by many billions of dollars in the 

coming decades as a result of climate changes. In the absence of 

careful planning and mitigation, the impact of global warming on 

these two programs, therefore, could substantially increase the annual budget imbalance and the overall deficit of our Federal Government. 

In addition to GAO, this morning we are privileged to hear from 

Eldon Gould, Administrator of the Department of Agriculture’s 

Risk Management Agency, which administers the Federal Crop Insurance Corporation, and from Michael Buckley, Deputy Assistant 

Administrator for Mitigation at the Federal Emergency Management Agency, which oversees the National Flood Insurance Program. 

These are the two Federal insurance programs that GAO examined. Together, they paid one-quarter of the $320 billion that public 

and private insurers together paid on weather-related claims in the 

last 25 years. 

In 1999, the Agriculture Department’s Risk Management Agency 

declared, ‘‘The risks of climate change, such as higher temperaVerDate 0ct 09 2002 08:22 Sep 25, 2007 Jkt 035525 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\35525.TXT SAFFAIRS PsN: PAT
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tures, changes in precipitation, increased climate variability, and 

extreme weather events can result in significant impacts on agriculture, forestry, and rural areas. 

‘‘The risks posed by climate change and the substantial challenge 

presented by mitigation and adaptation strategies require a strong 

USDA commitment to global change issues.’’ 

A year later, the Director of FEMA said, ‘‘There is no doubt that 

the human and financial costs of weather-related disasters have 

been increasing in recent years. It is time to increase our efforts 

in applying prevention strategies to reduce the impacts of the 

changes in weather climates.’’

In light of those statements that were made 7 and 8 years ago, 

I am going to ask our witnesses today what USDA’s Risk Management Agency and FEMA’s mitigation office have done to prepare 

for and overcome the increasing weather-related risks attributable 

to global warming. 

Finally, I look forward to hearing today from Andrew Castaldi, 

head of Catastrophe and Perils in the Americas Division of the 

Swiss Re America Corporation. We could probably use a little of 

that around the Senate, a head of catastrophe and perils. Swiss Re 

is the largest private reinsurer in the world, and I am glad to say 

that they also have a presence in the great State of Connecticut. 

We look forward to hearing from Mr. Castaldi about how this private insurance company estimates the costs of global warming if 

we do not do something about it soon. 

I thank you all for coming today, and I am now pleased to call 

on our Ranking Member, Senator Susan Collins of Maine. 

OPENING STATEMENT OF SENATOR COLLINS 

Senator COLLINS. Thank you, Mr. Chairman. 

The rapidly mounting evidence of climate change depicts a threat 

that extends even beyond vital environmental and social concerns. 

Global warming threatens to burden consumers and taxpayers with 

billions of dollars in added costs as insured losses from floods and 

storms cause increases in Federal spending and in insurance premiums. The new Government Accountability Office report that this 

Committee requested paints an alarming picture of ‘‘escalating exposures to catastrophic weather events.’’ Between 1980 and 2005, 

the GAO tells us, the loss exposure of the Federal flood insurance 

program has quadrupled to nearly $1 trillion while the crop insurance program’s exposure has risen by a factor of 26 to $44 billion. 

Nearly 5 million Americans depend on the Federal flood insurance program, whose loss exposures are rising with population 

growth and construction in vulnerable areas, such as the Gulf 

Coast, with more active hurricane cycles and with the prospect of 

additional severe weather effects from human-accelerated climate 

change. A prime example of our exposure is the year 2005—the 

year of Hurricane Katrina—when Federal flood insurance claims 

soared to $16.7 billion. 

Given the scientific consensus that climate change will continue 

for the foreseeable future, affecting the frequency and severity of 

droughts, floods, and storms, our insured loss exposures will most 

assuredly grow. 

4

Our Committee’s investigation into Hurricane Katrina showed 

the catastrophic consequences of being ill prepared for a natural 

disaster. We cannot afford to ignore the even greater risks of climate change. I have had the privilege of visiting with climate 

change researchers—including several scientists from Maine—in 

Alaska, Norway, New Zealand, and Antarctica, and I have seen 

firsthand the striking effects of climate change on snowfall, ice 

caps, and glaciers. Important work has been done, but we must 

deepen our understanding and improve our preparations for the 

new risks we confront. 

Some people are already working on that imperative. The GAO 

report notes that the private insurance industry, driven by the discipline of the marketplace, has been paying serious attention to the 

increased risks presented by climate change. 

Unfortunately, as the GAO observes, ‘‘Federal insurance programs, on the other hand, have done little to develop the kind of 

information needed to understand the programs’ long-term exposure to climate change.’’

Now, it is obviously true that our Federal insurance programs 

serve social purposes that do not involve profitability measures. 

But taxpayers deserve good stewardship of their resources just as 

much as stockholders do. We learned during the Hurricane Katrina 

investigation that private sector entities were often better prepared 

and quicker to respond to emergencies than some government 

agencies. If we fail to learn from industry best practices, taxpayers 

could face serious financial consequences. 

Like private insurers, government insurance programs must not 

only identify risks, but also determine appropriate pricing and risk 

mitigation. If we fail to act prudently in the face of climate change, 

we will be exposing the Federal budget—and the taxpayers who 

fund it—to unquantified risks and to potentially devastating financial consequences. 

Our actions must include more than more appropriations and 

premium increases. We must also consider policy adjustments after 

asking some critical questions. Is the Federal Government subsidizing overdevelopment in areas vulnerable to severe weather or 

flooding? Is the Federal Government unnecessarily placing vital infrastructure in harm’s way? Are State and local building codes taking new risks into account? 

Most important for the long run, however, we must ask what we 

can do, collectively and as individuals, to reduce climate change. 

Last Saturday, in communities in Maine and throughout the Nation, citizens came together to heighten awareness of climate 

change and to urge action. 

While we cannot solve these problems overnight, many actions 

that we can take now will lead us toward a more stable climate future. We must take sensible steps today in light of the knowledge 

that we now possess. 

In January, I cosponsored the Climate Stewardship and Innovation Act introduced by our Chairman, Senator Lieberman, and Senator McCain. In addition to backing that far-sighted bill, I will soon 

introduce a comprehensive approach designed to reduce our greenhouse gas emissions and slow climate change. It will quickly put 

us on the path of reduced emissions. 

5

1The prepared statement of Mr. Stephenson appears in the Appendix on page 27. 

2The GAO report entitled ‘‘Climate Change, Financial Risks to Federal and Private Insurers 

in Coming Decades Are Potentially Significant’’ appears in the Appendix on page 47. 

I hope this hearing this morning will improve our understanding 

of our exposure to the challenges and the risks of climate change, 

and I commend our Chairman for his leadership on this very important issue. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you, Senator Collins, for that excellent statement and for your leadership in this critical cause. 

Now we turn to the witnesses. Mr. Stephenson, thanks very 

much for your work, which is the basis of this hearing. We welcome 

your testimony now. 

TESTIMONY OF JOHN B. STEPHENSON,1 DIRECTOR, NATURAL 

RESOURCES AND ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. STEPHENSON. Thank you, Mr. Chairman, Senator Collins, 

and Senator Tester. You have both done an excellent job in summarizing the report, so this may seem a bit redundant, but I will press 

on. 

Chairman LIEBERMAN. Please. 

Mr. STEPHENSON. I am pleased to be here today to discuss our 

report to this Committee on the potentially significant risk facing 

private and Federal insurers as a result of climate change. Copies 

of this report are being released today and will be available on 

GAO’s website this afternoon.2

One of the most important aspects of our study was to begin to 

show the significant economic implications of climate change by examining one of the Nation’s most important and forward-thinking 

sectors—the insurance industry. The uncertain and potentially 

large losses associated with weather-related events are among the 

biggest risks that property insurers face. Projections by the Intergovernmental Panel on Climate Change (IPCC), as you have already mentioned, expect warmer surface temperatures to increase 

the frequency and severity of damaging weather-related events, 

such as flooding and drought. 

As you know, the IPCC is a large international body of scientists 

that was established by the World Meteorological Organization and 

the United Nations Environmental Program in 1988 to synthesize 

scientific information on the impacts of climate change. Products 

released by the IPCC are thoroughly reviewed by hundreds of scientists and approved by member countries. 

In addition, IPCC’s projections have been endorsed by both the 

National Academy of Sciences and the U.S. Government’s Climate 

Change Science Program. It is also important to note that both the 

IPCC and the National Academy have reported that observed temperature increase during the 20th Century cannot be explained by 

natural variability alone, but is largely attributable to human activities. 

GAO is, of course, not a science organization, but what our report 

attempts to do is examine past losses associated with weather-related events together with the implications of the IPCC’s projecVerDate 0ct 09 2002 08:22 Sep 25, 2007 Jkt 035525 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\35525.TXT SAFFAIRS PsN: PAT
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1Figure 1 appears in the Appendix on page 37. 

2Figure 4 appears in the Appendix on page 44. 

tions for continued and increasing global warming to get a better 

understanding of the potential impact on the insurance industry. 

Based on our examination of loss data from several different 

sources, we found that insurers paid claims of more than $320 billion in weather-related losses from 1980 through 2005. As shown 

in Figure 1 on page 9 of my prepared statement,1 insured losses 

varied significantly from year to year, but generally increased during this period from under $5 billion in 1980 to over $75 billion in 

2005. And the majority of these losses were due to the incident and 

effects of extreme weather events such as hurricanes, flooding, and 

droughts. Private insurers paid about 75 percent of this total, while 

the two Federal insurance programs we have already mentioned 

account for the remaining 25 percent. So the Federal share over 

this time period was about $78 billion—$44 billion in crop insurance, and $34 billion in flood insurance. 

While both private and Federal insurers are exposed to the increases in the frequency and severity of damaging weather-related 

events associated with climate change, the two sectors are responding in very different ways. Many private insurers are incorporating 

elements of climate change into their annual and strategic risk 

management practices to reduce their exposure to catastrophic risk 

posed by these extreme weather events. You will hear more from 

Mr. Castaldi from Swiss Re on this. As a result, some of their exposure is transferred to the policyholders, for example, by increasing 

premiums or deductibles, and, in effect, some exposure is transferred to the public sector by limiting coverage in specific areas. 

Federal insurance programs have similarly seen their exposure 

grow significantly, as you have mentioned, largely from increases 

in policies, and the IPCC’s projections suggest that weather-related 

risk will continue to grow. But unlike the private sector, the Federal programs have not incorporated the increased likelihood of extreme weather events associated with climate change into the risk 

management practices. 

As shown in Figure 4 on page 16 of my prepared statement,2 the 

National Flood Insurance Program’s total exposure has quadrupled 

to nearly $1 trillion over the last 25 years. Now, this is largely due 

to increased policies and the value of property, but, nevertheless, 

it is a very high exposure. And the Federal Crop Insurance Corporation’s exposure has increased nearly 26-fold to $44 billion during that same period. 

We believe that in light of the projections of the IPCC, the prospect of escalating exposures to catastrophic weather events are putting the Federal Government at ever increasing financial risk. We 

are concerned because the Federal insurers’ retrospective approach 

to estimating future exposure may not be appropriate in this case. 

Federal insurers need to develop and disseminate to the Congress 

and other key decisionmakers information needed to understand 

climate change’s impact on the increased financial risks their programs will face in the future. 

We acknowledge in our report that the mandate and operating 

environment of the major Federal insurance programs is signifiVerDate 0ct 09 2002 08:22 Sep 25, 2007 Jkt 035525 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\35525.TXT SAFFAIRS PsN: PAT
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1The prepared statement of Mr. Gould appears in the Appendix on page 120. 

cantly different from that of the private sector. The flood insurance 

and crop insurance programs, for example, are not expected to turn 

a profit. Quite the opposite. They are directed in statute to 

prioritize broad participation over financial self-sufficiency. However, the programs are expected to be sound stewards of the taxpayers’ money. Accordingly, we believe that better information 

about the Federal Government’s exposure to potential changes in 

weather-related risk would help the Congress and the Federal 

agencies responsible for these programs identify and manage this 

emerging risk area, one that potentially has significant implications for the Nation’s growing fiscal imbalance. 

Accordingly, we recommend in our report that the Department of 

Agriculture, which operates the Federal Crop Insurance Corporation, and the Department of Homeland Security, responsible for the 

National Flood Insurance Program, each analyze the potential 

long-term fiscal implications of climate change on their respective 

programs and report their findings to Congress. Both the Departments of Agriculture and Homeland Security in commenting on our 

draft report raised several points about how we characterize the 

operation of their programs, but both generally agreed with our 

recommendation. 

Mr. Chairman, that concludes my summary. I will be happy to 

answer questions at the appropriate time. 

Chairman LIEBERMAN. Thanks very much, Mr. Stephenson. That 

gets us off to a good start. Mr. Gould, thanks for being here. 

TESTIMONY OF ELDON GOULD,1 ADMINISTRATOR, RISK 

MANAGEMENT AGENCY, U.S. DEPARTMENT OF AGRICULTURE 

Mr. GOULD. Mr. Chairman, Senator Collins, and Senator Tester, 

I am Eldon Gould, the Administrator of the Risk Management 

Agency (RMA). I am a lifelong farmer from northern Illinois with 

a 1,500-acre corn, soybean, and wheat farm and a 700-sow farrowto-wean hog operation. I appreciate the opportunity this morning 

to explain the role of the Federal crop insurance program as it relates to the financial risks to the Federal and private insurers covering production agriculture. 

First, I would like to provide you some background about the 

Risk Management Agency and its objectives. 

Some of you may know our structure and mission very well, 

while others may have only limited knowledge of our role with crop 

insurance. As a vital part of the USDA, the Risk Management 

Agency plays an essential role in American agriculture by promoting, supporting, and regulating sound risk management solutions to preserve and strengthen the economic stability of America’s 

agricultural producers. 

RMA oversees and administers the crop insurance program via 

the Federal Crop Insurance Corporation, which is often referred to 

as the FCIC, which is led by its Board of Directors. The FCIC reinsures the policies sold to American farmers by private insurance 

companies approved to participate in the delivery of the Federal 

crop insurance program. The agency has a unique partnership with 

8

16 private insurance companies that are responsible for the sales, 

service, and loss adjustment of the various insurance policies. 

Crop insurance is the government’s principal means of helping 

farmers survive a major crop loss. It is also extremely useful to agricultural producers even when it is not paying losses. More and 

more, we see that crop insurance enables producers to secure approval of their operating loans, aggressively market a portion of 

their crop, and allow them to plan more reliably for their future. 

Regarding the recommendations contained in the GAO Report, 

RMA agrees with the need to analyze the long-term implications of 

climate change for the crop insurance program. We are particularly 

interested in the Intergovernmental Panel on Climate Change Assessment Report, which was released on April 6, and a report of 

the U.S. Climate Change Science Program that is expected to be 

released in December of this year. This IPCC report provides a rigorous assessment of what is known with regard to climate change 

impacts, adaptation, and vulnerability. As William Brennan, Director of the U.S. Climate Change Science Program, stated, ‘‘This is 

a valuable report that our Nation has contributed to in important 

ways through investments in observations and research.’’

With regard to agriculture in North America, the IPCC report 

concludes that ‘‘moderate climate change in the early decades of 

the century is projected to increase aggregate yields of rainfed agriculture by 5 to 20 percent, but with important variability among 

regions. Major challenges are projected for crops that are near the 

warm end of their suitable range or depend on highly utilized 

water resources.’’

The Department of Agriculture is also an important contributor 

to the U.S. Climate Change Science Program. The USDA is the 

lead agency for a CCSP Synthesis and Assessment Report on the 

Impacts of Climate Change on Agriculture, Land Resources, Water 

Resources, and Biodiversity that is expected to be completed in December 2007. A primary goal of the report is to enhance our understanding and ability to estimate impacts of future climate change 

on these systems and resources in the United States. This report 

is being prepared by the Department’s Global Change Program Office. 

As RMA proceeds in its analysis of climate change, it is worth 

noting that any analysis will be complicated by the fact that agricultural technology is continually progressing, resulting in a decrease in risk from weather events. Although the USDA agrees 

with GAO’s recommendations, we caution that much of the focus 

of this report is with losses related to coastal weather events, especially hurricanes. However, the main causes of catastrophic losses 

for the crop insurance program are drought, excess moisture, and 

freezes in the Nation’s interior. This is why the loss experience of 

the crop insurance program is distinct from the loss experience described in the report for the National Flood Insurance Program and 

property and casualty losses for private insurers. 

Much of the increase in crop insurance indemnities over time reflects the rapid growth of the crop insurance program rather than 

an increase in either the frequency or the severity of catastrophic 

weather events. In 1980, for example, the total liability of the FedVerDate 0ct 09 2002 08:22 Sep 25, 2007 Jkt 035525 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\DOCS\35525.TXT SAFFAIRS PsN: PAT
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eral crop insurance program was $3 billion. By 2006, total liability 

had reached almost $50 billion. 

USDA does take prospective actions to assess the potential increases in program risk associated with changes in weather and 

production agriculture. RMA continually analyzes available information to look for ways to improve its rating and program assessments. Currently, RMA tracks total program liability, a definitive 

measure of the total value at risk from climatic weather events, 

and updates this information on a weekly basis available on our 

public website. RMA also estimates expected changes in liability up 

to 10 years ahead through RMA’s budgetary baseline projections. 

In addition, RMA can assess the long-term as well as current exposure of the crop insurance program to catastrophic weather events, 

as GAO has pointed out with regard to a recurring 1993 flood loss. 

When GAO surveyed private insurers about what they were 

doing to estimate and prepare for the risks of climate change, it 

found that insurers were using catastrophe models that incorporate 

the hurricane cycle. RMA also incorporates hurricane risk into premium rates for several of its insured commodities. However, rather 

than focusing on short-term fluctuations in the hurricane cycle, 

RMA uses historic hurricane data that spans several cycles, which 

is not dissimilar to how predictions centers, like Colorado State 

University, make use of such data. 

Obviously, changes in weather patterns play a role in the Federal crop insurance program. Recognizing this role, FCIC is moving 

the Federal crop insurance program forward in adopting new technologies. For example, the FCIC recently introduced a pilot insurance program for pasture, rangeland, and forage that relies on 

weather station data and satellite imagery to monitor plant growth 

and determine insurance payments. 

In conclusion, let me reiterate that RMA agrees with the GAO 

recommendation with regard to the need to analyze the long-term 

implications of climate change for the crop insurance program. We 

view the inclusion of the new information and analysis as an opportunity to strengthen and improve the Federal crop insurance program. As I have stated, Mr. Chairman, I am a producer myself, 

and one of my goals as Administrator of the Risk Management 

Agency is to ensure that RMA is doing everything it can within its 

legislative authority to assist the farmer and rancher and to keep 

rural America and its critical agricultural industry competitive and 

sound. We recognize that RMA is a critical component of the safety 

net for the business of agriculture in this country. 

RMA continues to evaluate and provide new products and to promote the adoption of crop insurance as a risk management tool so 

that the government can further reduce its need for ad hoc disaster 

payments to the agricultural community. The growth and effectiveness of the crop insurance program is dependent on a reliable delivery system; insurance products that meet the needs of producers; 

investment in information technology to ensure the delivery system 

is timely, accurate, and dependable; and adequate funding to support compliance and program integrity, maintenance, and administration, product evaluation, and new product development. 

In 2007, we will continue to strive toward providing a useful, 

practical safety net for America’s farmers and ranchers. We thank 

10

1The prepared statement of Mr. Buckley appears in the Appendix on page 127. 

you for the opportunity to participate this morning, and at the appropriate time I would be happy to answer any questions. 

Chairman LIEBERMAN. Thanks, Mr. Gould. I look forward to asking you some of those questions. Mr. Buckley, thank you for being 

here. 

TESTIMONY OF MICHAEL BUCKLEY,1 DEPUTY ASSISTANT ADMINISTRATOR FOR MITIGATION, FEDERAL EMERGENCY 

MANAGEMENT AGENCY, U.S. DEPARTMENT OF HOMELAND 

SECURITY 

Mr. BUCKLEY. Good morning, Chairman Lieberman, Senator Collins, and Senator Tester. I am Michael Buckley. I am the Deputy 

Assistant Administrator for FEMA’s Mitigation Directorate, and I 

appreciate the opportunity to appear today to discuss the potential 

impact of climate change on the National Flood Insurance Program 

(NFIP) 

The NFIP is predicated on planning for a changing environment. 

The program has an inherent ability to readily recognize, plan for, 

and respond to gradually changing environmental conditions, 

whether caused by human activity or natural variability. Consequently, with respect to climate change research, studies, estimates, and ongoing discussions, the NFIP’s daily operations are 

unlikely to be dramatically affected. This does not mean that the 

NFIP should ignore the warnings associated with climate change. 

On the contrary, it means that the program already effectively accounts for gradual environmental changes, regardless of their 

cause. 

To explain, I would like to give a brief description of the NFIP 

and some related activities. 

As a vital component of Mitigation’s mission to help communities 

reduce their vulnerabilities to natural hazard events, the NFIP is 

straightforward. FEMA identifies flooding risk through its floodplain mapping program. Communities join the program and adopt 

building codes and land-use policies to mitigate flood risk. Residents in these communities can then purchase flood insurance, 

which standard homeowner policies do not cover. Residents pay 

premiums, and the Federal Government provides insurance coverage to those policies after a loss is suffered. With over $1 trillion 

in insured assets and more than 5.4 million policies, the National 

Flood Insurance Program floodplain management standards and 

building codes help communities reduce their vulnerability to flooding, protect lives, prevent property loss, recover faster after floods, 

protect their investment with a financial backstop, and also help to 

reduce the cost to the Federal Government when a disaster does 

happen. 

FEMA pushes communities to go beyond the minimum standards 

for the program to further reduce their vulnerabilities. As an example, the community rating system offers insurance rate discounts in 

the communities that go beyond the minimum standards, adopt 

higher standards. We feel that this has been a successful program, 

and many communities are participating. 

11

Understanding that the landscape is in a constant state of flux, 

the NFIP also develops, uses, and provides extensive current and 

historic data, Flood Insurance Rate Maps, the best available stateof-the-art information and technologies to help people and communities understand their flood risks, take action to reduce those 

risks, and insure against such risks. We are well on our way to 

completing a 5-year initiative to update and modernize the Nation’s 

flood insurance mapping inventory where we are combining historical and current data with state-of-the-art technology to compile 

modern digitized maps with updated flood risk information. These 

new digital FIRMs can clearly depict faster and more accurately 

than ever before the dynamic landscape conditions that affect important flood insurance and floodplain management decisions. 

With continued adequate funding, FEMA’s map modernization 

program will give the NFIP and the Nation’s communities a reliable planning and floodplain management resource for years to 

come. Just as important, FEMA will be able to update the flood 

maps to clearly reflect the gradually changing landscape and climate conditions that affect flood risk, providing a valuable support 

to the program’s continuing effort to accurately and fairly set flood 

insurance rates. 

Also, in relation to changing climatic conditions that may affect 

the frequency and intensity of future storms, it is important to note 

that Congress intended the National Flood Insurance Program to 

strike a balance between the long-term goal of fiscal accountability 

and the near-term objective of making sure that affordable flood insurance is available to residents and businesses located in floodprone areas. The unique factors that help the NFIP offer affordable 

flood insurance coverage for everyone—discounts on structures 

built before the National Flood Insurance Program came into being, 

a 10-percent cap on annual increases in rates, our Federal obligation to provide coverage to all applicants, regardless of the degree 

of risk—tend to impede our ability to strengthen the program’s financial condition. 

Finally, it is important to remember that the NFIP’s risk management strategies are designed to assess and insure against current risks and to respond to changes on flood risk data as appropriate when it becomes available. During an average historic loss 

year, for example, the NFIP covers claims with policyholders’ premiums and related fees. However, as climate change evaluations 

and discussions consider a future of more extreme weather activity, 

it should be pointed out that the NFIP is not always self-supporting and was not designed to handle a catastrophic event without the authority to borrow from the Federal Treasury. 

That said, the NFIP operates on the premise that Hurricane 

Katrina cannot be viewed as an anomaly, and we stand ready to 

work with Congress and others to strengthen the program’s effectiveness. 

In conclusion, the Mitigation Division and the NFIP respect the 

warnings associated with climate change, and we believe our program effectively accounts for gradual environmental changes, regardless of their cause or origin. This way, no matter how frequently storms strike in the future and no matter how increasingly 

violent they may become, fewer communities will be declared disVerDate 0ct 09 2002 08:22 Sep 25, 2007 Jkt 035525 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 C:\DOCS\35525.TXT SAFFAIRS PsN: PAT
12

1The prepared statement of Mr. Castaldi appears in the Appendix on page 131. 

aster areas, lives will be saved and damages reduced, recovery will 

be faster, and more homes and businesses will be protected with 

the financial safety net of flood insurance. 

Thank you for this opportunity to appear before this Committee, 

and I will be happy to answer your questions at the appropriate 

time. 

Chairman LIEBERMAN. Thank you, Mr. Buckley. Mr. Castaldi, all 

yours. 

TESTIMONY OF ANDREW CASTALDI,1 HEAD, CATASTROPHE 

AND PERILS, AMERICAS DIVISION, SWISS RE AMERICA CORPORATION 

Mr. CASTALDI. I would like to thank Chairman Lieberman and 

Ranking Member Collins for holding this hearing on the impact of 

global warming on private and Federal insurance. My name is Andrew Castaldi, and I am representing Swiss Re, the largest reinsurer in North America and the world. Over the next 10 minutes, 

I would like to share with you Swiss Re’s view regarding climate 

change, how climate change may impact weather and natural catastrophes, how reinsurers model these natural catastrophes, and, 

finally, a few words about how we incorporate this information into 

our business. 

Swiss Re’s core property business includes mitigating the financial consequences of natural catastrophes such as hurricanes, 

earthquakes, and floods. We provide life and property casualty reinsurance and products, which facilitate the convergence of the insurance and capital markets. Our business is to assume the liabilities from others onto our balance sheet. Or to put it more simply, 

we take other companies’ risk off their hands. As risk experts, our 

time horizon stretches out 50 to 100 years. 

Our interest in climate change began almost 20 years ago, and 

it has become an important component of our long-term risk management strategy. We believe unequivocally that climate change 

presents an increasing risk to the world economy and social welfare. There is now indisputable scientific evidence that the Earth’s 

temperature is rising at an alarming rate and that this rise is due 

mainly to human activities. According to the Intergovernmental 

Panel on Climate Change, also known as the IPCC, it can be concluded now with a 90- to 95-percent probability that human-produced greenhouse gas increases from fossil fuel use, agriculture, 

and land-use changes have caused most of the observed increase in 

global average temperatures since the mid-20th Century. To put it 

simply, global warming is a fact, and a robust response is required. 

Climate change over time will affect weather and weather patterns. How it will affect severe weather events varies and depends 

upon the region of the world and the natural hazard being evaluated. As an example, global warming suggests more extreme 

events, such as more intense rainfall or prolonged drought, which 

may lead to localized inland flooding or, in the case of flood and 

drought, agricultural problems. Combining intense rainfall with 

rising ocean levels from melting polar land-ice and warming sea 

water will place much of our coastal properties at greater risk. 

13

More to the interest of this panel, will global warming affect the 

annual frequency and severity of tropical cyclone activity? After the 

record-setting experiences of 2004 and 2005, this question is often 

asked. 

In 2005, we had more named North Atlantic storms and hurricanes than ever—27. It was also the costliest hurricane season 

ever. The economic cost of Hurricane Katrina alone was an estimated $135 billion. Hurricanes Rita, Wilma, and Katrina were the 

first, third, and sixth strongest North American tropical cyclones or 

hurricanes on record. 

Were the 2004 and 2005 seasons attributable to global warming? 

We do not know for sure. One or 2 years of experience is not 

enough to confirm a trend. But here is what we do know. On a 

worldwide basis, CO2 levels are up significantly and sea surface 

temperatures are higher also. 

Hurricane severity is impacted by warmer waters. One recent 

study by Webster and Holland indicates a trend, since about 1970, 

toward more intense tropical cyclones. In the early 1970s, 17 percent of all tropical cyclones were Category 4 or 5 hurricanes. That 

number has increased to 35 percent—an increase two times higher 

than it was 35 years ago. 

Today there are open questions. But given the potentially catastrophic implications, the precautionary principle should be applied 

consistent with prudent risk management. It is quite clear that, if 

left unchecked, CO2 emissions will alter the natural variations of 

climate change and will affect U.S. weather patterns and some natural catastrophes. Preventative action, therefore, must be taken 

today. If we wait until we have achieved absolute certainty, we will 

run the risk of acting too late. 

In many areas outside the Atlantic, we see indications of global 

warming’s impact on atmospheric hazards that are presently easier 

to quantify. In Europe, there is already enough evidence today to 

demonstrate that European winter storms have and will continue 

to increase with climate change. Swiss Re, and perhaps others, 

have incorporated these findings into our risk and loss models for 

the European regions. Throughout the world our scientists continually monitor new studies on the subject, and once we are convinced, we incorporate the new science into our models. 

Presently, Swiss Re is collaborating with various research initiatives on the topic of how climate change will impact us here in the 

United States and around the world. 

In general, risk modeling varies depending upon the peril we 

study. For tropical cyclone wind and storm surge, Swiss Re starts 

with the historical database of the last 100-plus years of storm activity and then considers the climate factors coinciding with each 

of those years. We use these historical records as a base and then 

apply current climate conditions in order to estimate the frequency 

and severity of tropical cyclones for future years. Very short-term 

climate conditions, such as El Nino, are recognized too late to be 

incorporated into the models that the industry uses. Moderate-term 

climate variability, such as the Atlantic Multi Decadal Oscillation 

and other oscillations, cause a definite swing in the Atlantic sea 

surface temperatures and do correlate with hurricane intensity. 

The scientific community has not yet reached a consensus regardVerDate 0ct 09 2002 08:22 Sep 25, 2007 Jkt 035525 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 C:\DOCS\35525.TXT SAFFAIRS PsN: PAT
14

ing the extent to which these oscillations are either natural or exaggerated by human activities. Regardless of the cause, it is expected that the warm phase, which we are currently in, correlates 

with increased hurricane activity. This warm phase is expected to 

last for the next 10 to 20 years. This means we could be in for some 

bad weather for some time to come. 

Consequently, industry models have been adjusted to bring them 

in line with the changing hazard and risk assessments. As a result, 

expected losses for natural peril covers in the United States rose 

markedly. Modelers factored in a general increase in hurricane activity in the North Atlantic, regardless of cause, and quantified 

some other factors. These other aggravating factors include the following: Increased values and complexities associated with concentrations of risk in coastal regions, increased vulnerability of assets and production processes, and increased insurance penetrations. 

These changes in risk assessment have prompted insurers and 

investors to take a more cautious look at the risks they take. Some 

insurers have greatly limited their market participation in the Gulf 

States. It is also true that Florida property owners are paying more 

for coverage than they did before. In light of these developments, 

some have suggested that natural catastrophes are not insurable in 

the private market and that a government backstop is required. 

This is not Swiss Re’s view. Because these risks can be modeled by 

the private sector and are random in nature, they are insurable. 

The largest events can and have been adsorbed by the industry. We 

believe, therefore, that a government backstop for such risks is inappropriate public policy. 

There are steps the public sector can take to mitigate future 

damages including better zoning and building codes. These are key 

components to reducing our natural catastrophe vulnerability. We 

must all grapple with this new weather environment. We must recognize that we can no longer always build what we want or where 

we want. 

Recognizing the importance of climate change, Swiss Re is deploying a broad strategy to confront the challenges including the 

following: Working to understand the risk and adapting pricing and 

risk models accordingly; developing products and services for mitigation and adaptation; increasing risk awareness, especially with 

governments—we believe governments must provide leadership by 

passing legislation to limit CO2 emissions and passing stricter and 

enforceable zoning and building codes’ and finally, addressing our 

own environmental footprint by pledging to be greenhouse neutral 

by 2013. 

Swiss Re looks forward to sharing our knowledge and working 

with the Congress and other policymakers to develop workable and 

innovative ideas to bring more private capital to the insurance 

market. Thank you for the opportunity to testify on these critical 

issues, and I look forward to any questions that you may have. 

Chairman LIEBERMAN. Mr. Castaldi, thanks very much for that 

testimony. I am struck by the fact that the three of you, Mr. Gould, 

Mr. Buckley, and Mr. Castaldi, have referred to the U.N. IPCC conclusions and have accepted them, which is that climate change is 

occurring, and it is caused by humans. 

15

I am very appreciative—and obviously I am acting as an advocate here—that Swiss Re as a matter of business, not as a matter 

of ideology, is calling for governmental action to limit the emissions 

of greenhouse gases that are causing the climate to warm. I appreciate that very much. 

Mr. Gould and Mr. Buckley, I want to ask you to clarify your reaction to the recommendation that Mr. Stephenson makes from the 

GAO that both of your programs, crop insurance and flood insurance programs, analyze and report to Congress on the consequences of climate change to your activities, including particularly the increased cost to the Federal Treasury. Mr. Gould, I think 

you specifically said you accepted that responsibility. Mr. Buckley, 

I did not hear it or see it in your written statement. Does FEMA 

agree with the recommendation of Mr. Stephenson about this and 

intend to comply with it? 

Mr. BUCKLEY. Yes, FEMA has no issue with the recommendation 

in the GAO report. We did provide some informal comments, and 

we do not object. In fact, we think it would be good to analyze the 

impacts, and we would move forward on that. 

Chairman LIEBERMAN. I appreciate that, and we will be following 

it and monitoring it closely. To me, we have now reached a state 

of scientific consensus about what is happening that it would be irresponsible not to have you make this kind of analysis and report 

to Congress. I would compare it to the way in which the administrators of the Social Security trust fund—it is a bit different, but 

not that different—use demographic projections to determine what 

requirements the Social Security fund will have to meet the obligations that law gives it to pay benefits to people. In the same sense, 

we have assumed a responsibility through these two Federal insurance programs. I think it is clearly important for Congress and, of 

course, you who run the programs to have your best estimate about 

what the potentially significant changes in climate and, therefore, 

losses from climate events will have on your programs and on the 

Federal Treasury. 

Mr. Gould, I want to give you a chance to clarify something. In 

your testimony, you said at one point, ‘‘Although the USDA agrees 

with GAO’s recommendations, we caution that much of the focus 

of this report is with losses related to coastal weather events, especially hurricanes. However, the main causes of catastrophic losses 

for the crop insurance program are drought, excess moisture, 

freeze, etc., in the Nation’s interior.’’

Mr. Stephenson, isn’t part of what you are saying to us that one 

of the potential impacts of climate change in the United States is 

not just on the coastal events, but also on some of the inland 

events that this statement of Mr. Gould refers to, such as drought, 

particularly? 

Mr. STEPHENSON. Absolutely. If you look at the IPCC report, 

both the third one and the fourth one that is coming out now, we 

may have highlighted hurricanes a little more in our report because they are such a money drain, on the one hand. But, yes, certainly drought and flooding will affect croplands and absolutely will 

affect the Federal crop insurance program. And that is what we are 

talking about, which should be considered. 

16

Chairman LIEBERMAN. So, Mr. Gould, let me give you a chance 

to respond to that because I do not want anybody to come away 

with the conclusion that the Department of Agriculture feels, because there will be a lot of coastal events, that there probably will 

not also be significant climate-related increases in drought as a result of global warming. 

Mr. GOULD. No. We recognize that, and as I said in my testimony, over time drought has been our major cause of loss. And, obviously, that is caused by weather events, and most of the crop production and our insured liability is in the interior of the United 

States. Our second cause of loss, major cause of loss, is what we 

call excess moisture. It may or may not be to the degree of flooding, 

but it is more related to preventive planting claims or there is excess moisture in the spring when producers should be planting 

their crops. 

So obviously those are weather-related events, and they come 

and go over time and could very well be caused over a long period 

of time by climatic weather changes. 

Chairman LIEBERMAN. I saw a story recently that relates to the 

subject of this hearing, and I believe this will be of interest to Senator Collins. It happened to be about Vermont and the health of 

the maple trees there and the concern expressed by the farmers 

there that the season was shorter or coming earlier, and the trees 

were beginning to weaken. And there was some suggestion that 

there was a danger that the maples, if this continues, would actually die and no longer produce the maple syrup, which is not only 

part of the history of Vermont—and Maine—but a staple of the 

economy. There would be maple trees, but they would be north, in 

Canada. That is a reminder of the potential impact. 

Mr. Castaldi, just one question. Has Swiss Re tried to quantify 

at all in dollars the potential impact of changes in the climate in 

the time ahead? 

Mr. CASTALDI. The way that we do it is we just look at certain 

events and what they could be, based upon if we see increased activity and also the increases of population. At this time we do not 

have enough information to say is it 5 years, 10 years, 15 years 

down the road, but we could see what happens if we have more 

Category 4 or 5 hurricanes, what happens if we have extensive periods of drought and increased flooding. We do know what potentially the loss dollars might be, but we do not know when that will 

occur. 

Chairman LIEBERMAN. What is the potential? Have you tried to 

quantify it? 

Mr. CASTALDI. We do not have any statistical—I mean, I could 

probably get some of that information, what the probability is in 

the next 5 or 10 years of going from, let’s say, an average loss of 

$35 billion a year to $50 billion. I do not have those numbers in 

front of me. 

Chairman LIEBERMAN. I would appreciate hearing that. What 

you have concluded, without regard to specific numbers, is that the 

great probability is that the losses that you will have to cover as 

a result of climate related incidents in the years ahead are going 

to be greater than they are today, significantly greater. 

17

Mr. CASTALDI. Absolutely. When I talk to people, I always mention that we base all of our studies off the past 100 years of activity. 

Chairman LIEBERMAN. Right. 

Mr. CASTALDI. And it is not going to be your grandfather’s hurricanes or climate anymore. It is going to be something significant. 

And we might be looking at the last 10 years and projecting that 

forward, and climate change might exaggerate the normal cycles of 

climate activity that we see. And every time we do it, we take two 

steps forward, perhaps one step back, as the cycles go. 

Chairman LIEBERMAN. Thanks very much. My time is up. 

Senator Collins. 

Senator COLLINS. Mr. Gould and Mr. Buckley, as I listened to 

your testimony this morning, I was struck by a lack of any sense 

of urgency. 

For example, Mr. Buckley, you said that the respective risks of 

bankruptcy accounts for much of the differences in approach to climate change on the part of private insurers compared to public insurers, such as RMA. 

Mr. Gould, you also, in discussions with my staff, said that the 

agency you administer would have adequate time to adjust its rates 

and its procedures. And I contrast that, another comment, Mr. 

Buckley says that the NFIP’s day-to-day operations are not likely 

to be affected by current climate change estimates. 

There seems to be a very relaxed attitude on the behalf of both 

of your agencies toward what many of us view as a looming crisis. 

And I contrast it to Mr. Castaldi’s testimony where he ticks off a 

litany of actions that his company is already taking, both within 

the company and also with respect to its exposure to future losses. 

It concerns me that there seems to be an assumption on both of 

your parts that because the taxpayers stand behind your agencies 

and its programs, you do not have to do the kind of analysis that 

the private sector is doing, and the statement that our different approaches reflect the difference in not having to worry about going 

bankrupt, it really distresses me because ultimately it is the taxpayers that are going to be on the hook. 

So I guess I would like both of you to give me more assurance 

than I am hearing in your oral testimony and in reading your written statement that you are taking this seriously and are taking actions. Mr. Gould, we will start with you. 

Mr. GOULD. OK. Thank you for the opportunity to respond. I 

think I can alleviate some of your concerns. We do not take our responsibility lightly. We are mandated by Congress to have a loss 

ratio of not over 1.075, but we, in fact, rate for a loss ratio of 1.0, 

which means we take in as much dollars in premium as we spend 

in dollars for indemnities. And, in fact, over recent years, in the 

last decade or so, we have been well under 1.0, which I think reflects the job the agency is doing in its rating for its various products in various parts of the country. 

So we not only legislatively are mandated to be good stewards of 

the taxpayer dollars; I think the people in the agency would do that 

even if they were not directed by the Congress to do so. 

The other thing that is important is that we look back over time, 

look and see what has been the results of our losses, and adjust 

18

1The chart referred to appears in the Appendix on page 148

our losses for various crops, various products, and actually on a 

county-by-county basis, and that is done rigorously on an ongoing 

basis. So, again, I wish to assure you that we do take our job seriously and will continue to do so, and as we can look at new information and available information, that would only enhance our 

process. 

Senator COLLINS. Mr. Buckley. 

Mr. BUCKLEY. Thank you for the opportunity to respond, Senator 

Collins. The goal of the National Flood Insurance Program is really 

to be self-supporting—in other words, collect enough premium to 

pay the losses. Since 1986, and prior to Hurricane Katrina, that 

was the case, that we were able to pay the losses without excessive 

borrowing, or when we did have to borrow, we were able to pay it 

back—and, I might add, with interest. 

Prior to the hurricane season in 2004, which was a significant season, the balance in the fund was over $1 billion. The 2004 hurricanes that hit Florida caused at that time the greatest single loss 

year the program had experienced. Those losses were slightly over 

$2 billion. We were able to pay those claims with only minimal borrowing. I believe that we borrowed $300 million, and we were able 

to pay back $75 million before Hurricane Katrina hit. And, obviously, Hurricane Katrina was an extreme event for the National 

Flood Insurance Program. 

We are constantly monitoring data associated with flooding. 

Flooding is a very site-specific issue, and through our mapping program, we continually update the maps when there is an indication 

that the risk is changing. And in terms of the seriousness that we 

take the predictions for climate change, as I said, we are in full 

agreement with the GAO report that we should conduct a study, 

take a look at it, and we are prepared to do that. 

Senator COLLINS. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you very much, Senator Collins, 

for those excellent questions. 

Senator Tester, thanks for being here this morning. 

OPENING STATEMENT OF SENATOR TESTER 

Senator TESTER. Thanks for having this hearing, Chairman 

Lieberman and Ranking Member Collins, and I thank you four gentlemen for being here and the job that you folks do. 

I guess I will start with Mr. Stephenson, and you will just have 

to help me out here a little bit. If your charts are correct, in 2005 

in the flood insurance area, there was $78 billion of taxpayer liability, in other words, to support there, out of a $321 billion loss year. 

Did I read the chart right?1

Mr. STEPHENSON. That was over a period of time. 

Senator TESTER. How many years? 

Mr. STEPHENSON. I think it was 1980 through 2005. 

Senator TESTER. Oh, so it is a cumulative chart. 

Mr. STEPHENSON. Correct. 

Senator TESTER. And for crop insurance during that time, it was $44 billion, if I read it right. And what was the total loss? I assume 

it is still a 20-year period or so. 

19

Mr. STEPHENSON. Correct. 

Senator TESTER. And what was the total loss on that? 

Mr. STEPHENSON. I do not have that. I think the crop insurance 

program is relatively close to the premiums that it is taking in 

right now. 

Senator TESTER. OK, so it is about 100 percent taxpayer liability. 

Mr. STEPHENSON. Yes. 

Senator TESTER. Is that the way you see it, too, Mr. Gould? 

Mr. GOULD. I am not sure I understood your question. 

Senator TESTER. Well, the question is there was $321 billion of 

losses in the flood—in the crop insurance program and $78 billion 

of that was taxpayer liability. In that same period there was a $44 

billion payout, if the chart is right, through crop insurance? 

Mr. GOULD. Over that 27-year period? 

Senator TESTER. Yes, the 27-year period. I am just trying to get 

the figures right. Basically what I am really looking for, as a percentage of loss, what is the taxpayer liable for? 

Mr. GOULD. Well, probably your numbers—I do not have those 

numbers in front of me. 

Senator TESTER. Actually, they are not mine. 

Mr. GOULD. Obviously it distorts the numbers quite a bit when 

you talk about what has happened over a 27-year period, particularly when our program has grown so dramatically in the last few 

years. 

Senator TESTER. I am just looking as a percentage of loss what 

the taxpayers—if it was $1 million, I would ask the same question. 

Is the taxpayer liability on the loss to agriculture 100 percent? It 

is about 20 percent in the flood insurance. Is it 100 percent? 

Mr. GOULD. The charts are exposure, so we are not saying this 

is taxpayer liability. A lot of these payments are made from collecting premiums for both programs. 

Senator TESTER. OK. 

Mr. GOULD. We are talking about—we are trying to describe how 

big the risk to the Federal Government is. 

Senator TESTER. How big of a check did the Federal Government 

have to write out for flood insurance over the last 27 years? 

Mr. GOULD. I am sorry. I was getting the information here. Actually, since we have the private insurance companies involved, a lot 

of that money comes from the private industry as well, so it is not 

all taxpayer dollars. 

Senator TESTER. I understand that. I thought I heard testimony 

today that said that there was a $78 billion taxpayer check that 

was written out, and I did not know if it was 2005 or over 27 years, 

because of flood loss. Is that correct? Go ahead. 

Mr. BUCKLEY. Yes, I would like to respond to that. Prior to Hurricane Katrina, the National Flood Insurance Program paid out I 

believe on the order of $14 billion since the beginning of the program. These were claims that were paid with premiums that were 

collected. On occasion, we did have to borrow from——

Senator TESTER. So there has been no taxpayer liability? 

Mr. BUCKLEY. That is correct. And since Hurricane Katrina, we 

have had to increase the borrowing quite substantially. The program is obligated to pay that borrowing back with interest. 

20

Senator TESTER. So those losses due to flood, the $321 billion, 

taxpayers did not pay a nickel of reimbursement on that? 

Mr. STEPHENSON. Until 2005. 

Senator TESTER. Until Hurricane Katrina. 

Mr. STEPHENSON. Right. 

Mr. BUCKLEY. The way the program was set up was where there 

was not sufficient reserves in the fund, the program could borrow 

from the Treasury. Obviously, we did borrow quite significantly because——

Senator TESTER. But you have been paying it back. 

Mr. BUCKLEY. So far this year, we have paid interest to the tune of about $700 million. 

Senator TESTER. Now, I know for a fact that the same cannot be 

said about crop insurance, so is there some way you can give me 

some sort of idea about what the liability is to the taxpayer per dollar of loss? I am just curious. Actually, this was just a forerunner 

to a series of other questions. I was just trying to get this straight 

in my mind what the taxpayer liability is. And the reason is this 

is a huge issue. We are tasked here with putting out some longterm policy that business can work with and depend upon that 

deals with climate change. What we are dealing with here is specific areas that are the impacts of those climate changes, whether 

it is flood or whether it is crop loss. And I happen to be a farmer, 

as you are, Mr. Gould, and I can tell you things have happened on 

my farm in the last 10 years that I have not seen and I do not 

think my folks saw and I do not think my grandparents saw either. 

Things are changing, and it is not increasing my production. So we 

have some problems. 

Let me run down some more specific questions. Mr. Castaldi, is 

fire part of what you reinsure? 

Mr. CASTALDI. When we reinsure, we are reinsuring—basically 

our property product is large-scale catastrophes. So most of the fire 

losses that you see are never going to be catastrophes unless it is 

a brush fire or something like that. And those will penetrate the 

reinsurance program, but the losses there are so insignificant to 

those from wind, flood, and earthquake that it is not really worth 

even measuring. 

Senator TESTER. The change in exposure is due somewhat—you 

said it is due to drought and excess moisture and frost, but it is 

also due to increased acres enrolled in the program. 

Mr. GOULD. Right. 

Senator TESTER. Have you guys done any analysis to see if those 

percentages of losses—now we are comparing 20 million acres to 

242 million acres. Have those percentages of losses increased per 

acre? 

Mr. GOULD. Well, yes, we monitor that closely, and I think the 

important thing is to look back—and it may even be in a chart in 

my testimony. But up until about 1993, prior to that our loss ratio 

was high, it was around 1.5. Since that time, there were things 

done within the program by Congress to increase the participation 

so we have a broader base of support, less adverse selection. We 

do not only have producers that are likely to have crop problems, 

but all producers involved in the program. And probably we have 

done a better job of rating since 1993. So since 1994—I am sorry. 

21

That is kind of a magical year when there was more participation. 

Since then, our loss ratio has been 0.88. And if you look over time 

across the country and because we have such a huge program that 

covers the width and breadth of the United States, our loss ratios 

do not change dramatically, nor do the causes of loss change dramatically from year to year. 

Senator TESTER. So your loss ratio is at 0.88. I am not an insurance person. I do not know what that means. But let’s just assume 

if the number goes up, it is a bad thing, and if the number goes 

down, it is a good thing. 

Mr. GOULD. That is correct. 

Senator TESTER. And it has not changed——

Mr. GOULD. You are almost an insurance agent. [Laughter.] 

Senator TESTER. All right. Well, I do not want to go there, but 

that is OK. That 0.88 has not changed since 1994? That 0.88 loss 

ratio—and you have not——

Mr. GOULD. Well, it varies from year to year, but I think with 

the exception of 1 year in there, it has stayed under 1. 

Senator TESTER. That would indicate to me that global warming 

has had no affect on your loss payments. 

Mr. GOULD. That may not be an accurate conclusion. It means 

that the program is accounting for changes in crop losses, whatever 

those losses may be caused by. 

Senator TESTER. OK. 

Mr. STEPHENSON. Senator, if I could offer one comment? 

Senator TESTER. Yes. 

Mr. STEPHENSON. We are not suggesting anything about the 

management of these programs. 

Senator TESTER. Nor am I. What I am trying to do with these 

questions is get my hands around what the taxpayer liability is, if 

that taxpayer liability is increasing because of climate conditions or 

if it is increasing because of governmental decisions that have been 

made potentially in the Legislative Branch, or if it has been made 

by administrative decisions. And if it has been increased by environmental conditions, we have a problem that we have to deal 

with. And if it has no effect on the taxpayer liability, let the private 

sector handle it. If it does, then we have to deal with it. 

Mr. STEPHENSON. We are only suggesting that with the size of 

the exposure and the potential of climate change, history may not 

be a good predictor of the future and you have to incorporate that 

into your out-looking modeling to make sure that the taxpayer is 

not unduly liable in the future. That is really what we are concerned about. 

Senator TESTER. I understand. Being in production agriculture 

myself, though, I see things that have happened over the last 10 

years that would indicate to me that the future—that we need to 

do some planning, if you know what I mean. Now, 10 years is nothing in the overall scheme of this Earth. There is no doubt about 

it. It is the blink of an eye, if even that much. But the concern is 

that when we—in Montana right now, the western part of the 

State is so dry that if you dropped a match on it, it would burn 

right now. Glacier Park is losing its glaciers. The snowpack was 

gone in February, probably, in the State. Where I am at right now, 

22

1 Charts provided by Mr. Gould in response to Senator Tester appear in the Appendix on page 

148. 

I am getting great rain. The last 8 years before that, we did not 

cut a crop. And we cut every crop during the 1930s. 

So things are happening out there, and the programs that you 

have focus around the edge of the impacts of global warming. I am 

talking about crop insurance and flood insurance. We have to do 

something more globally here from an administrative standpoint. 

But in the meantime, we still need food, we still need wood products, we still need places for people to live. And so it is a big issue, 

and I do not mean to take 10 minutes. Sorry. At any rate, you guys 

go ahead, and if I can come back, I will ask some more questions. 

Chairman LIEBERMAN. Go ahead because we are probably going 

to move toward summarizing. Your experience as a farmer is really 

important here. You add a lot to the discussion from personal experience. Also, your questions have been very good and direct. So if 

you have one or two more. 

Senator TESTER. I do. [Laughter.] 

Chairman LIEBERMAN. It is always a danger to open that door. 

Senator TESTER. Well, I guess that we depend a lot on local landuse planning, and if local land-use planning is not done right, particularly in the area of flood insurance—but now in our State, in 

the area of fire insurance, we have a huge landowner in the State 

of Montana that is going to sell off some acres in the forest, places 

where you have to bring light in through a tube because it is forest. 

And my question is—and it probably goes to Mr. Castaldi. If folks 

build their house in a forest, it is kind of like building it in a floodplain. Does the Federal Government as a firefighting entity have 

any liability if they choose not to fight that fire and there are 

houses there? 

Mr. CASTALDI. I am not the expert on that, but I know that if 

there is a fire there, the insurance company is going to pay. We 

might look to subrogate against somebody, but we cannot subrogate 

against the government. So we are going to wind up being liable 

for the loss. I mean, there would be selective criteria and rating 

recommendations upon the inspections or suggestions to that homeowner, if the company deems them insurable, to try to mitigate any 

losses. 

Senator TESTER. This will be my last one. Thank you, Mr. Chairman. 

Mr. Gould, you talked about that the RMA FCIC has a 10-year 

projection. They have looked into that. What does that 10-year projection tell you as far as that 0.88 number goes, if everything is left 

the same? 

Mr. GOULD. I do not have those numbers in front of me, but I 

suspect that we have looked ahead and projected what that would 

be. That is part of our normal budget process so that we can provide some input to the Congress on what should be budgeted to the 

FCIC. But we will have to get back to you with that actual number.1

Senator TESTER. That would be great. One last point. Does it 

take congressional action to change the way it is rated? And let me 

give you an example. Crop insurance works really well if you have 

23

a loss every 5 years or 10 years. It does not work really well if you 

have a loss—you have heard this before—3, 4, or 5 years in a row. 

What does it take to change that? And what kind of input could 

you give us long term as to how we could change that to make it 

more workable for the farmers? I do not want anybody getting rich. 

I just want them to be able to stay in business until things square 

themselves around. 

Mr. GOULD. Well, that comes under the term of what we call ‘‘declining yields.’’ Obviously, the program is based off of average 

yields over a 10-year period of time, and we are pretty well locked 

into statute as to what we can do with that. 

Senator TESTER. So it is a statutory thing. 

Mr. GOULD. Yes, but we have had two different studies out looking at ways that we can address the declining yield problem. 

Again, we have not liked either one of those. We have not made 

any changes, but to make any dramatic changes, it would take legislative change. And in Montana and the Dakotas, that has been 

a problem. 

Senator TESTER. The only other thing I need, along with that 10-

year projection, is what percentage the taxpayer is liable for, for 

FCIC losses. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks very much, Senator Tester. Excellent questions. And it strikes me that your last one really raises 

a point that we are potentially, as a result of climate change, going 

to see a very different kind of weather-related loss. 

For instance, if drought settles into some areas, it is not just 

going to be for 1 year if it is a result of climate change. So there 

is going to be a different kind of meaning to the notion of declining 

crop yields because it is going to be longer term and, therefore, the 

cost may be much more significant. 

I appreciate, first, the report that you have done, Mr. Stephenson. Thank you and your colleagues at GAO. It provokes a response. And I must say, Mr. Gould and Mr. Buckley, I share the 

restlessness that Senator Collins expressed, it is really important 

to us. I was troubled, Mr. Gould, in your statement where you said 

that—and you are speaking the truth, but it could be disconcerting 

to us, which is, ‘‘RMA does not face the risk of insolvency, as do 

private insurers, should an unexpectedly large loss event occur. 

The respective risks of bankruptcy account for much of the differences in approach to climate change on the part of private insurers as compared to public insurers, such as RMA.’’ That is the 

truth. The Federal Government will hopefully—not without limit, 

but will stand behind these two insurance programs. But we need 

you now to approach the programs in the face of this unusual probable threat of global warming. 

I think it is a definite threat, but the consequences that we can 

now say are probably going to happen, they will impact both the 

occurrences that activate your respective crop insurance and flood 

insurance programs over a longer term with much greater costs 

than ever before. So we need you to go at it—although you will not 

go bankrupt, as Swiss Re potentially could, we need you to examine 

this as if it was possible. 

24

Mr. GOULD. Well, I think you have to look at those numbers and 

that statement in the light that, because of the way the program 

is structured, we do not have to build additional reserves into the 

program to be prepared for upcoming catastrophic losses. We, 

again, continue to rate that at an expected loss of 1.0, and based 

on history, if we have to change our rating to achieve those goals, 

we can and will. 

Chairman LIEBERMAN. In other words, because you are an insurance program, not an insurance company. 

Mr. GOULD. That is correct. 

Chairman LIEBERMAN. You are backing up the insurance companies. I appreciate that. I would really urge you to consider some of 

the unusual losses that are possible here as both agencies’ programs do the report that Mr. Stephenson has called for and as you 

have said you would do. 

Can you give a ballpark estimate as to how long it will take you 

to submit that kind of report to the relevant committees of Congress? 

Mr. GOULD. Well, we submit a report on an annual basis. Actually, it is about a 2-year lag time. We just submitted the 2004 report. That seems like a terribly long time, but it is because it takes 

time for our losses to get settled, the claims to get settled. So by 

the time we get that done and the data comes forth, it is about a 

2-year lag time, but it is an ongoing event that we do. 

Chairman LIEBERMAN. Here is what I would like you to do, and 

I think this is what Mr. Stephenson has in mind. This is a unique 

report to make, apart from your regular reporting to Congress. And 

unless you are ready to give me an answer now, I would urge you 

to go back to your agencies, talk to your colleagues, and then communicate with us, if you would, giving yourselves a deadline for 

when you hope to give us a report in response to Mr. Stephenson’s 

recommendations. 

Mr. GOULD. OK. 

Chairman LIEBERMAN. I thank you for a very important and 

helpful morning. Again, in our ongoing discussion and attempt to 

adopt legislation that will reduce the greenhouse gas emissions 

that contribute to global warming, the very cold, no pun intended, 

calculations that Swiss Re has done about the probability of billions and billions of dollars of extra losses as a result of climate 

change to me is another very compelling, non-ideological, non-political, non-partisan argument for adopting economy-wide controls on 

greenhouse gas emissions. I thank you for bringing that perspective 

to the table. 

Senator Collins, do you have final questions or comments? 

Senator COLLINS. Thank you very much, Mr. Chairman, and 

thank you for holding this hearing and focusing our attention not 

only on the environmental and social impacts of climate change, 

which are often discussed, but on the financial implications. I just 

want to make a couple of closing comments. 

Discussion of climate change usually focuses on the impact on 

coastal communities’ rising sea levels, but, in fact, as your comments and the comments of Senator Tester remind us, the consequences for agriculture are potentially enormous in this country 

and around the world. 

25

In addition, people often talk about climate change as if it only 

produces warming. In fact, it will produce most likely, the models 

tell us, extensive droughts in the interior of the United States, perhaps a deep freeze in Western Europe if the Gulf Stream changes 

because of rising sea levels. 

The consequences are very different for different parts of our 

globe. It is not always warming. And that is why I think we need 

to look at the consequences for these two Federal insurance programs, which I believe the consequences are potentially enormous, 

and that is why I urge a sense of urgency. And I am still troubled 

by the statement, Mr. Buckley, that you made that day-to-day operations are not likely to be affected by current climate change estimates. 

The University of Maine is doing some fascinating research 

which suggests that climate change could happen abruptly and indeed that over the centuries there have been periods where climate 

change has happened within a space of years rather than decades 

or centuries. 

So I think we need to take a really hard look at this issue, and, 

Mr. Stephenson, I thank you for the excellent work the GAO has 

done. I think it is a call for action and for us not to be complacent 

and not to think that we have a long time to factor in the implications of global climate change into our insurance programs. 

It was very helpful to hear of Swiss Re’s projections analysis and 

planning for climate change, and I think we have to bring that 

same approach to public sector programs and to public sector planning, not only at the Federal level but at the State and local level 

as well. The policy and financial and fiscal implications are indeed 

enormous. 

So thank you, Mr. Chairman, for holding this excellent hearing 

today to help us broaden our thinking about the implications of climate change. 

Chairman LIEBERMAN. Thanks, Senator Collins. Your reference 

to the research being done at the University of Maine in some 

sense clarifies the challenge that we have, which is whether, if I 

can put it this way, our political system reaches the tipping point 

to get something done about global warming before the climate 

reaches the tipping point where something sudden and disastrous 

happens. And that is our challenge. 

Senator Tester, do you want to have a final word? 

Senator TESTER. I just want to thank you, Mr. Chairman and 

Ranking Member Collins. I want to thank the witnesses for your 

testimony here today. I really do appreciate the work that you folks 

do. Thank you. 

Chairman LIEBERMAN. Thanks. My thanks to all of you. 

The record for the hearing will be kept open for 15 days in case 

we have any further questions for you to answer in writing or you 

have any statements you would like to add to the record. 

I thank you again. The hearing is adjourned. 

[Whereupon, at 10:28 a.m., the Committee was adjourned.] 

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