Climate Change and the Danger of Forecasting Risk

Predicting catastrophic weather events such as hail, floods, tornadoes, heat waves, and wildfires used to be very difficult. Now, it is almost impossible.

According to a report released in April by the SmarterSafer coalition, a group made up of more than 30 different organizations that include some of the world’s largest insurance companies, the U.S. must increase its spending on pre-disaster mitigation efforts and infrastructure protection in order to adequately manage the inherent risks of climate change.1

“Hurricanes, floods, fires, and heat waves resulting in millions of dollars of damage are no longer unusual events,” reads the report. “They are now a fact of life, posing increased risk to life and property while driving up the costs of recovery.”2

There’s little question that disaster costs have increased over the last several decades. The report notes that since the Stafford Act was passed in 1988, disaster declarations have steadily escalated from just 16 in 1988 to 242 declarations in 2011. The Stafford Act is a federal law that was created to bring order to federal natural disaster assistance for state and local governments in carrying out their responsibilities to aid citizens.2

There are two major reasons for these increased disaster costs. First, there’s simply been more development as the economy has grown, resulting in bigger and more expensive structures that are exposed to damage when extreme events occur.

The second cause, however, is climate change. Things don’t appear that they’ll be getting any better on their own. According to the National Oceanographic and Atmospheric Administration, if global action on climate change is not taken, sea levels are projected to rise anywhere from 8.4 inches to 6.6 feet above 1992 levels.

A warming planet not only raises sea levels and threatens coastal areas, but a growing body of evidence suggests that the worsening effects of climate change are also greatly contributing to drought, wildfires, heat waves, and other severe weather such as heavy rain, hurricanes, tornadoes and floods.

Some fear that it may already be too late. In May of 2013, scientists announced that the concentration of heat-trapping carbon dioxide in the earth’s atmosphere had reached 400 parts per million — its highest level in at least three million years. To put that into some perspective, this was a time before humans had even appeared on the scene. The 400 parts per million mark puts us dangerously close to what many scientists believe is the “point of no return,” where vast, disruptive climate change is unavoidable in the future.3

While such projections may not seem overly problematic to some, they are certainly red flags for an industry such as insurance, which relies on effectively identifying and managing risks to survive. Addressing such issues should be a priority for just about everyone, as failing to be prepared can lead to increased costs for taxpayers, property owners, government entities and insurance providers when powerful storms wreak havoc.

Natural disasters destroy homes, cars, businesses and crops, leading to an increase in the number and severity of insurance claims. As a result, insurers in some parts of the country have stopped offering certain types of insurance coverage, and many insurers are now limiting the types of coverage they offer. This has also led to higher insurance premiums that are often unaffordable for consumers. As a result, some consumers buy policies that don’t provide as much coverage as they actually need, while others go without insurance completely.

Climate change is not just a property and casualty issue. It can also affect consumers’ health. For example, poor air quality can lead to an increase in the severity and number of people with asthma, which can also lead to an increase in health insurance claims and overall healthcare costs.

“Our current natural disaster policy framework focuses heavily on responding to disasters, rather than putting protective measures in place to reduce our vulnerability and limit a disaster’s impact,” reads SmarterSafer’s report. “This needlessly exposes Americans to greater risks to life and property and results in much higher costs to the federal government.”

A similar problem also exists in the National Flood Insurance Program, which has utilized federal insurance subsidies for decades to mask the actual risks of damage from floods. As a result of the increasingly powerful and prevalent storms and hurricanes that have been enabled by climate change, the NFIP now owes US taxpayers over $24 billion.4

The report concludes that rather than continuing with its current course, it is critical for the federal government to begin overhauling current disaster policies.

“Neither the states nor the federal government devote sufficient resources to preparing communities and citizens for these growing risks,” says the report. “The ready availability of government aid after a disaster actually reduces individual and community incentives to invest in mitigation and makes it less likely homeowners and businesses will insure their property for disaster.”

For Pool members, preparation is key. This means taking physical and policy precautions at your district to ensure an effective response to one of these events. This might include hail-resistant roofing, fire-wise landscaping, or having a proper disaster response plan in place to ensure employee safety.

But additionally, this means making sure that your organization is financially prepared for those events. This includes ensuring that all your district’s assets and real estate are scheduled, and that you have sufficient coverage to weather any storm that may blow your way.

Below is an overview of the SmarterSafer report. This guidance is intended for the nation and industry at large, but provides useful information about the direction the country is headed in preparing for unpredictable weather-related disasters.

SmarterSafer Report’s Recommendations

This report identifies the following reforms to move the policy framework in a more sustainable direction:

Encourage  Planning  and Mitigation

  • Shift some federal resources to pre-disaster preparation to help communities plan for and mitigate risk.
  • Provide disaster assistance on a sliding scale to incentivize communities to ramp up pre-disaster preparation, particularly through the use of natural infrastructure and smarter, safer building.
  • Ensure disaster spending is linked to concrete results, smarter, safer building, and the mitigation of long term risks.
  • Encourage the use of natural infrastructure such as marshes and dunes wherever possible to absorb storm surges and riverine flooding, and lessen the impact of waves.
  • Explore the use of public-private finance options to pay for disaster mitigation.
  • Ensure FEMA’s limited hazard mitigation funds are being spent on mitigation efforts that truly reduce disaster losses rather than expensive floodwalls, levees, and other so-called “grey infrastructure” that is within the purview of other agencies with larger budgets.

Fortify  Infrastructure

  • Protect federal infrastructure with the development and enforcement of smarter and safer mitigation standards, including adoption of recently updated federal flood risk management standards.
  • Require communities that access pre- and post disaster funds to have plans in place to rebuild or repair public infrastructure in smarter safer ways.
  • Explore the use of private-sector financial tools such as insurance and catastrophe bonds to shield publicly owned infrastructure from catastrophic, taxpayer-funded liabilities in case of disaster.

Reform Flood Insurance

  • Phase in National Flood Insurance Program premiums to risk based rates and ensure flood maps are accurate and informed by the best available science.
  • Provide subsidies only for those who truly cannot afford risk-based rates through a means tested, time- limited, and transparent system outside of the rate structure.
  • Encourage mitigation by expanding the Community Rating System and increasing the number of enrolled communities.
  • Ensure that private sector insurance can compete to cover a greater share of risks in disaster-prone communities.

Ensure Equity

  • Mitigate the cost of flood insurance rate hikes with targeted, means-tested, temporary, and paid-for assistance that is outside the rate structure.
  • Ensure low-income communities and households are able to fully participate in federal mitigation efforts and implement a clear plan to help lower-income communities bear the cost of planning, preparedness, and mitigation and make sure disaster relief flows to areas of greatest need.

Improve Coordination

  • Establish a central, high-level federal office to better coordinate emergency response and preparedness.
  • Set clear roles for federal government, state and local governments, community organizations, and individuals when it comes to disaster activities ranging from planning to mitigation, response, and recovery.
  • Better bridge silos among advocates working in water quality, climate change, and floodplain management.
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