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THREAT OF RISING CATASTROPHIC LOSSES
by Frank Nutter
President, Reinsurance Association of America
In recent years, natural disasters from climate relatedevents such as burricanes, tornadoes, wildfires, severe winterstorms and floods have taken an increasing toll on the public, government and insurers. Much of the dramatic increase in losses can be attributed to population growth in high-risk areas, and to an increase in the value of vulnerable property. There also have been changes in the frequency and severity of extreme weather events.
Insurers, policy-holders, and governments (both federal and state) have beca greatly affected. For the US insurance industry, claim payments related to natural catastrophes (including events unrelated to the weather, such as earthquakes) rose dramatically between 1949 and 1993. They peaked in 1992 at nearly $23 billion, $15.5 billion of which resulted from Hurricane Andrew alone.
1995 is following the trend. During the first three quarters of 1995, total insured property damage from natural catastrophes in the US amounted to an estimated $5.7 billion. The fourth quarter opened with Hurricane Opal striking on October 4th and inflicting an estimated $2.1 billion in insured damages. Even without additional losses, this year's extraordinary hurricane season has helped make 1995 the third most expensive in the history of the US insurance industry.
Insurers and the victims of weather catastrophes are not theonly losers. All policy-holders pay for these losses through higher insurance premiums. Ultimately, taxpayers pay for the disaster assistance provided by government. From 1990 to 1994, there was a 64% increase in federally certified disasters, compared to 1985-89. During these last 5 years, disaster relief from the Federal Emergency Management Agency amounted to billions of dollars.
Climate variations or longer term changes may become dramatically more important. For instance, there now are indications that we may see a major upswing in hurricane activity in coming years. The chances of a major hurricane striking a US city would increase. Insured losses alone from a direct hit could range from over $25 billion in New Orleans to nearly $55 billion in Miami.
INSURANCE INDUSTRY RESPONSE
The insurance industry is responding with a range of initiatives. The Insurance Institute for Property Loss Reduction (WPLR) was created last year to help reduce deaths and injuries and to limit property damage caused by natural hazards. The Institute promotes building codes improvements and enforcement; and supports superior building design,
Partly in response to meetings in early 1995 with Vice President Gore, our industry will undertake a comprehensive review of the Administration's climate- and weather- related initiatives, and will evaluate their importance to insurers and policy-bolders. The industry will assist the Administration as it investigates the implications of climate scenarios for the vulnerability of property to damage and loss. Insurers will explore synergies between the promotion of alternative energy sources and technologies, improvemeats in construction design and techniques, and other initiatives which slow global climate change and limit catastrophic losses from extreme weather.
CRITICAL NEED FOR RESEARCH FUNDING
Better building codes and improved understanding of risk exposure for insurers alone are not enough to meet the current threat to our country and our economy. A better understanding of weather patterns, natural climate variability, and fundamental shifts in climate -- along with greater understanding of the potential impacts on society -- are essential if we are to respond to threatening conditions in a cost-effective way. The research needed to build understanding in these areas constitutes the heart of the US Global Change Research Program (USGCRP). This federally-funded effort ultimately can help encourage better contingency planning, save billions of dollars in property losses and most importantly, save lives.
A program the scope and breadth of the USGCRP requires federal resources. This widely acclaimed enterprise successfully embraces a broad range of scientific disciplines, manages a large technological infrastructure from earth-observing satellites to oceanographic vessels -- and is inherently international. TheUSGCRP widely disseminates information critical to both scientific endeavor and practical decision-making. Nevertheless, the USGCRP offers a tempting target to budget cutters.
It is critically important that the USGCRP continues to receive adequate federal funding. Excessive cuts could contribute to higher costs not just for disaster victims, insurers and policy-holders, but for the federal government itself. In short, continued research is a wise insurance policy.
| understand that the Second Assessment Report (SAR) of the United Nations Intergovernmental Panel on Climate Change (IPCC) is scheduled to be approved in a plenary session in Rome in December.
I also understand that the Ad Hoc Group on the Berlin Mandate (AGBM) established by the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change met last August in Geneva. At that time, AGBM decided to consider at its third session in March 1996 aspects of the SAR that are relevant to its negotiation of various proposals for new commitments after the year 2000 for Annex 1 Parties to the Convention, which includes the United States (US). The AGBM will also consider any related conclusions or advice of the Convention's Subsidiary Body for Scientific and Technological Advice (SBSTA)
Secretaries Christopher and O'Leary and Dr. Baker
A number of individuals and groups have raised concerns about several procedural and policy aspects relating to the IPCC, IPPC SAR, COP, AGBM and SBSTA. Consequently, I would appreciate your response to the attached questions they have about these matters.
I request your responses to these questions by November 20, 1995. To the extent necessary, please consult with the Office of the US Global Change Research Program, the White House Office of Science and Technology Policy, the Environmental Protection Agency, and any other agency that can be helpful.
Should you have any questions regarding this request please contact Dr. Harlan Watson (202-225-9816)or Mr. Larry Hart (202-225-7281)of the Subcommittee staff. Thank you for your immediate attention to this request.
ATTACHMENT - QUESTIONS SUBMITTED BY REPRESENTATIVE DANA ROHRABACHER
October 19, 1995
Please explain the applicable procedures for preparation, review, approval, and publication of the SAR's final drafts to be considered at the December meeting of the IPCC Plenary in Rome and include the timetable actually provided by the IPCC for governments and others to review and comment on the SARs and the related synthesis report. This should include a discussion of the roll and selection of lead authors and of the preparation of summaries of each assessment.
Did the US and the IPCC fully comply with all applicable procedures?
I understand that the IPCC also proposed to adopt a lengthy synthesis report on *Knowledge Relevant to the Interpretation of Article 2 of the Convention and an 8page Summary for Policymakers of that report. This proposal was apparently made without any adherence to the applicable IPCC procedures. I also understand that the IPCC recently abandoned the longer document. It has been reported to me, however, that some want to incorporate one or more sections of the abandoned report in the Summary for Policymakers, which has been retitled.
Please explain the origin and basis of both reports and why it is appropriate at this late date to try to incorporate portions of the abandoned synthesis report in the retitled Summary.
Did any person or persons in your agencies participate in, or approve of, the original decision, later abandoned, that the IPCC merely should accept the longer Synthesis Report, rather than requiring its line-by-line approval by governments in December?
Please identify those persons and explain why the US apparently supported that process.
It is my understanding that the draft reports of the three IPCC Working Groups for the
A draft of the so-called "Synthesis Report" forming part of the SAR found its way to the media via the Internet even though clearly marked "For Internal Use Only. Do not Cite/Distribute." The September 10, 1995 edition of the New York Times cited the draft document. The September 22, 1995 edition of Science reports that the source of the leak" was the US Global Change Research Program (USGCRP) which posted the draft on the World Wide Web, "to make the synthesis, which had been transmitted to the US government for comment, more accessible to US scientists who would help supply that critique." The article explains that a New York Times reporter, while apparently "surfing" the Internet, read the report and considered its appearance on the Web to be tantamount to publication." The Science article cites the Executive Director