US climate plan may mean flood opportunities

New plans revealed by the Obama Administration detailing a national climate action plan have been welcomed by reinsurance industry trade bodies, which hope it also prompts greater private sector involvement in covering flood risks.

The action plan requires flood risk to be evaluated on a forward-looking basis, something the Reinsurance Association of America (RAA) has welcomed. The body has always argued for greater private sector involvement in managing this risk.

The Federal Emergency Management Agency released a report this week detailing the scale of the increased flood risk in the US thanks to rising seas and increasingly severe weather. It estimates that the portion of US at risk of flooding will increase by 45 percent by 2100, doubling the number of flood-prone properties covered by the National Flood Insurance Program.

The report said climate change is likely to vastly expand the size and costs of the 45-year-old government flood insurance program. Premiums paid into the program totalled $3.2 billion in 2009, but that figure could grow to $5.4 billion by 2040 and up to $11.2 billion by the year 2100, the report found.

In a speech detailing the national climate action plan, President Obama mentioned the rising costs of insurance premiums attached to worsening extreme weather. He said the US was “already paying the price of inaction".

The RAA has welcomed the national climate action plan broadly and the focus on flood risk specifically.

“We  endorse  the  President’s  proposal  to  convene  an  insurance  sector  group  to  focus on best practices  and  processes  for  assessing  climate  risk,” said Frank  Nutter, president  of  the RAA.

“Since  the  reinsurance  industry  has  been a leader in assessing extreme weather and climate risk,  as  well  as  how  to  finance  the  costs associated with the consequences of both, we look forward to working with the Administration on this important initiative.”

Commenting on the flood announcement specifically, Nutter said: “The RAA has long supported a private sector role in underwriting flood risk, and this requirement is particularly critical to achieving that goal.”

The strategy presented by President Obama will target three challenges: how to reduce carbon emissions in the US, mostly from power plants; how to protect the US from damage due to climate change; and how to work with other countries to negotiate a global plan for climate protection.