US flood standards: politics trump common sense
In early 2015, the White House issued an executive order establishing a new Federal Flood Risk Management Standard that would require all federal agencies to consider climate change and other flood risk associated with federal facilities, projects, financing activity, or water and land use decisions.
In recent appropriations bills for the funding of federal agencies, some members of Congress who disagree with the purported causes or impacts of climate change are actively working to defund any efforts to implement the new standard. The outcome of that remains uncertain but it is clear that the politics around climate change in the US remain highly charged.
“The private reinsurance market has sent clear signals that it wants to reinsure flood and other natural catastrophe risk.”
While politics may affect the government’s use and evaluation of the latest scientific thought on the causes and implications of sea level rise and heavy precipitation events, the private markets are not so constrained. The private insurance industry, whose business involves the assessment and pricing of risk, can provide economic signals regarding risk and resiliency that policymakers should consider in the aforementioned activities and in many other aspects of government activity.
The Reinsurance Association of America strongly supports private market involvement in the evaluation and pricing of flood risk. If appropriately utilised, private market risk assessment can send policymakers, builders and consumers economic signals about the level of flood risk associated with building site selection, land use decisions, federal flood insurance and disaster relief availability and, yes, the implications of sea level rise.
These economic signals might encourage building in areas at less risk or in a manner that minimises flood risk. Insurance can also enhance financial resiliency for the residual risk that cannot be avoided altogether.
The current timing is unique. Since the political climate may not change and the National Flood Insurance Program (NFIP)—currently $23 billion in debt—is facing a Congressional reauthorisation battle in 2017, the stage is set for the utilisation of the private risk markets to help evaluate and price risk for commercial and residential consumers and for the NFIP itself as it contemplates the transfer risk to manage its catastrophic flood exposure.
The private reinsurance market has sent clear signals that it wants to reinsure flood and other natural catastrophe risk, and that it is willing to work with the NFIP and other federal agencies to enhance decision-making and the nation’s financial health and resiliency.
Recent consultations with the Federal Emergency Management Agency as well as the National Oceanographic and Atmospheric Administration suggest that government and the private sector can explore cooperative agreements on data sharing, risk analysis and risk transfer. Community resilience, personal recovery from extreme events and disaster assistance costs will all be improved as a result.
Dennis Burke is vice president, state relations at the Reinsurance Association of America. He can be contacted at: burke@reinsurance.org
