Climate Change: Better Management of Exposure to Potential Future Losses Is Needed for Federal Flood and Crop Insurance

US Government Accountability Office

Since GAO’s 2007 report on flood and crop insurance, exposure growth in hazard-prone areas has increased losses, and climate change and related increases in extreme weather events may further increase such losses in coming decades. Scientific and industry studies GAO reviewed generally found that increasing growth and property values in hazard-prone areas have increased losses to date and that climate change may compound this effect. From 2007 through 2013, data from the Federal Emergency Management Agency (FEMA) and the Risk Management Agency (RMA) show that exposure to potential losses for insured property grew from $1.3 trillion to $1.4 trillion (8 percent). According to industry data, private sector exposure to such loss grew from $60.7 trillion to $66.5 trillion (10 percent) from 2007 through 2012. Federal exposure to uninsured loss also increased by 46 percent over this period, based on a 2013 analysis by the Congressional Research Service. According to the studies GAO reviewed, climate change may substantially increase losses by 2040 and increase losses from about 50 to 100 percent by 2100.

Why GAO Did This Study

GAO was asked to review climate change’s effect on insurers. This report examines (1) how federal and private exposure to losses has changed since GAO’s 2007 report on the subject, and what is known about how climate change may affect insured and uninsured losses; (2) how public insurers are preparing for climate change, and any challenges they face; and (3) how private insurers are preparing for climate change and any challenges they face. GAO reviewed 20 studies, examined federal and private sector data on exposure to losses from 2000 to 2013, reviewed agency documents, and interviewed agency officials and a nonprobability sample of eight insurers and reinsurers.

What GAO Recommends

GAO recommends that FEMA and RMA take additional steps to encourage flood and crop insurance policyholders to adopt building and agricultural practices that reduce long-term risk and federal exposure to losses. FEMA agreed with GAO’s recommendation, and RMA neither agreed nor disagreed with GAO’s recommendation.


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