Insurance is a mechanism for spreading risk over time, across large geographical areas, and among industries and individuals. While insurers assume some financial risk when they write policies, they employ various strategies to manage risk so that they earn profits, limit potential financial exposures, and build capital needed to pay claims. For example, they charge premiums for coverage and establish underwriting standards, such as refusing to insure customers who pose unacceptable levels of risk, or limiting coverage in particular geographic areas. Insurance companies may also purchase reinsurance to cover specific portions of their financial risk. Reinsurers use similar strategies to limit their risks, including charging premiums, establishing underwriting standards, and maintaining close, long-term business relationships with certain insurers. Both insurers and reinsurers must also predict the frequency and severity of insured losses with some reliability to best manage financial risk. In some cases, these losses may be fairly predictable. For example, the incidence of most automobile insurance claims is predictable, and losses generally do not occur to large numbers of policyholders at the same time. However, some infrequent weather-related events—hurricanes, for example—are so severe that they pose unique challenges for insurers and reinsurers. Commonly referred to as catastrophic or extreme events, the unpredictability and sheer size of these events—both in terms of geography and number of insured parties affected—have the potential to overwhelm insurers’ and reinsurers’ capacity to pay claims. Catastrophic events may affect many households, businesses, and public infrastructure across large areas, resulting in substantial losses that deplete insurers’ and reinsurers’ capital. Given the higher levels of capital that reinsurers must hold to address catastrophic events, reinsurers generally charge higher premiums and restrict coverage for such events. Further, in the wake of catastrophic events, reinsurers and insurers may sharply increase premiums to rebuild capital reserves and may significantly restrict insurance and reinsurance coverage to limit exposure to similar events in the future. Under certain circumstances, the private sector may determine that a risk is uninsurable. For example, while homeowner insurance policies typically cover damage and losses from fire and other perils, they usually do not cover flood damage because private insurance companies are largely unwilling to bear the financial risks associated with its potentially catastrophic impact. In other instances, the private sector may be willing to insure a risk, but at rates that are not affordable to many property owners. Without insurance, affected property owners must rely on their own resources or seek out disaster assistance from local, state, and federal sources. In situations where the private sector will not insure a particular type of risk, the public sector may create markets to ensure the availability of insurance. For example, several states have established Fair Access to Insurance Requirements (FAIR) plans, which pool resources from insurers doing business in the state to make property insurance available to property owners who cannot obtain coverage in the private insurance market, or cannot do so at an affordable rate. In addition, six southern states have established windstorm insurance pools that pool resources from private insurers to make insurance available to property owners who cannot obtain it in the private insurance market. Similarly, at the federal level, the Congress established the NFIP and the FCIC to provide coverage where voluntary markets do not exist. The Congress established the NFIP in 1968, partly to provide an alternative to disaster assistance for flood damage. Participating communities are required to adopt and enforce floodplain management regulations, thereby reducing the risks of flooding and the costs of repairing flood damage. FEMA, within the Department of Homeland Security, is responsible for, among other things, oversight and management of the NFIP. Under the program, the federal government assumes the liability for covered losses and sets rates and coverage limitations. The Congress established the FCIC in 1938 to temper the economic impact of the Great Depression and the weather effects of the dust bowl. In 1980, the Congress expanded the program to provide an alternative to disaster assistance for farmers that suffer financial losses when crops are damaged by droughts, floods, or other natural disasters. Farmers’ participation is voluntary, but the federal government encourages it by subsidizing their insurance premiums. USDA’s RMA is responsible for administering the crop insurance program, including issuing new insurance products and expanding existing insurance products to new geographic regions. RMA administers the program in partnership with private insurance companies, which share a percentage of the risk of loss or the opportunity for gain associated with each insurance policy written. Global temperatures have increased in the last 100 years and are projected to continue to rise over the next century. Using observational data and computer modeling, climatologists and other scientists are assessing the likely effects of temperature rise associated with climate change on precipitation patterns and on the frequency and severity of weather- related events. The key scientific assessments we reviewed generally found that warmer temperatures are expected to alter the frequency or severity of damaging weather-related events, such as flooding or drought, although the timing, magnitude, and duration of these changes are as yet undetermined. Additional research on the effect of increasing temperature on weather events is expected in the near future. Nevertheless, research suggests that the potential effects of climate change on damaging weather- related events could be significant. We reviewed the reports released by IPCC, NAS, and the federal Climate Change Science Program (CCSP) that are shown in figure 1. These leading scientific bodies report that the Earth warmed during the twentieth century—0.74 degrees Celsius from 1906 to 2005 according to a recent IPCC report—and is projected to continue to warm for the foreseeable future. IPCC, NAS, CCSP, and other scientific bodies report that this increase in temperature cannot be explained by natural variation alone. IPCC’s 2001 assessment of the impact of increasing temperatures on extreme weather events found that it was likely the frequency and severity of several types of events will increase as greenhouse gas emissions continue. The earth’s climate system is driven by energy from the sun and is maintained by complex interactions between the atmosphere, the oceans, and the reflectivity of the earth’s surface, among other factors. Upon reaching the earth, the sun’s energy is either reflected back into space, or is absorbed by the earth and is subsequently reemitted. However, certain gases in the earth’s atmosphere—such as carbon dioxide and methane— act like the glass in a greenhouse to trap some of the sun’s energy and prevent it from returning to space. While these gases play an important part in maintaining life on earth, their accumulation in the atmosphere can significantly increase global temperatures. The earth warmed by roughly 0.74 degrees Celsius over the past 100 years, and is projected to continue warming for the foreseeable future. While temperatures have varied throughout history, triggered by natural factors such as volcanic eruptions or changes in the earth’s orbit, the key scientific assessments we reviewed have generally concluded that the observed increase in temperature in the past 100 years cannot be explained by natural variability alone. In recent years, major scientific bodies such as the IPCC, NAS, and the Royal Academy (the United Kingdom’s national academy of science) have concluded that human activities, including the combustion of fossil fuels, industrial and agriculture processes, landfills, and some land use changes, are significantly increasing the concentrations of greenhouse gases and, in turn, global temperatures. Although climate models produce varying estimates of the extent of future changes in temperature, NAS and other scientific organizations have concluded that available evidence points toward continued global temperature rise. Assuming continued growth in atmospheric concentration of greenhouse gases, the latest assessment of computer climate models projects that average global temperatures will warm by an additional 1.8 to 4.0 degrees Celsius during the next century. Some scientists have questioned the significance of the earth’s present temperature rise relative to past fluctuations. To address this issue, the NAS recently assessed the scientific community’s efforts to reconstruct temperatures of the past 2,000 years and place the earth’s current warming in an historical context. Based on its review, the NAS concluded with a high level of confidence that global mean surface temperature was warmer during the last few decades of the twentieth century than during any comparable period during the preceding 400 years. Moreover, NAS cited evidence that temperatures at many, but not all, individual locations were higher during the past 25 years than any period of comparable length over the past 1,100 years. Determining the precise nature and extent of the relationship between average global temperatures and weather-related events is an exceedingly challenging task. Several key assessments of the state of this science have addressed the large body of work on this topic. Using observational data and computer models, scientists are examining the effects of rising temperatures on precipitation patterns and the frequency and severity of extreme weather-related events. The complexity of weather systems, together with the limited statistical precision of projections of the extent of future temperature change, often produces different model results, and the results themselves represent a range of potential future conditions. Nonetheless, a key assessment of climate model projections indicates that an increase is likely in the frequency or severity of damaging extreme weather-related events. In 2001, the IPCC, a leading scientific authority on climate science, released its Third Assessment Report, which assessed the state of knowledge of, among other things, the potential for global changes in extreme weather-related events. The IPCC described the relationship between temperatures, precipitation, and weather-related events. Increased global mean surface temperatures are linked to global-scale oceanographic, meteorological, and biological changes. For example, as the earth warms, more water evaporates from oceans or lakes, eventually falling as rain or snow. IPCC reported that permafrost is thawing, and the extent of sea ice, snow cover, and mountain glaciers are generally shrinking. The IPCC also noted that global sea level rose between 0.1 and 0.2 meters during the twentieth century through thermal expansion of seawater and widespread loss of land ice, and that this sea level rise could increase the magnitude of hurricane storm surge in some areas. Warming is expected to change rainfall patterns, partly because warmer air holds more moisture.