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F I S C A L I M P A C T R E P O R T

SPONSOR Nunez

ORIGINAL DATE

LAST UPDATED

3/7/2007

HJM 74

SHORT TITLE Climate Change Effect on Flood Insurance

SB

ANALYST McOlash

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Office of the State Engineer (OSE)

SUMMARY

Synopsis of Bill

House Joint Memorial 74 requests the Public Regulatory Commission (PRC) to make a one-year

study of the impacts of climate change on the increasing costs of flood-control insurance.

FISCAL IMPLICATIONS

NFI

SIGNIFICANT ISSUES

House Joint Memorial 74 recognizes that New Mexico state agencies, including OSE, have

conducted reviews of the possible effects of global warming and associated climate change.

These agencies have concluded that both are occurring and will have negative impacts on the

state. The situation at the federal level is quite different for political, not scientific, reasons.

Most U.S. insurers operate with a federal government that has continually questioned climate

science, and has remained deeply divided on the issues of climate change and global warming.

House Joint Memorial 74 – Page

2

Overall, compared to their European counterparts, American insurance companies, and the

industry as a whole, have done less to examine and manage the implications of climate change.

In Europe, reinsurers and insurers operate in a political and cultural environment that has largely

adopted the belief that anthropogenic climate change is not merely a reality, but one with effects

that are observable and measurable already.

Property-casualty insurance companies in the U.S. have become extraordinarily sophisticated

in understanding, analyzing, and managing their current risks due to natural catastrophes.

However, current predictive models used by insurance companies do not even include scenarios

to examine even the highly certain events (such as continued and accelerating future sea level

rise, and continued future polar ice melting).

The industry models, used to set contract prices and inform planning cycles (typically a few

years), are based on current and historical data to predict catastrophic risk. The models do not

yet incorporate predicted changes in weather events due to climate change, or the predictions of

climate scientists about impacts associated with global warming. U.S. insurance companies’

ability to predict future risk is very slim and their ability to set insurance rates for climate change

effects is severely limited.

BM/mt