By moving physical and fiscal risk away from taxpayers through risk transfer, agencies can better satisfy and expand upon their mission while preserving the long-term stability of Federal operations. Aon, along with the Insurance Development Forum, Lloyds of London and many multilateral organizations, have been leading the calls for the inclusion of risk transfer to be deployed alongside government support for natural catastrophes. Drawing on key expertise from the insurance and reinsurance industry is a specific area where private investment can help provide supplemental funding, specifically tied to more frequent and severe natural disasters. Risk transfer can not only help mitigate the explicit physical, transition and fiscal risk to the Federal Government but also the implicit and growing socio-economic costs driven by the protection gap.
The Role of the Federal Government A recent statement by Treasury Secretary Janet Yellen noted that, “Climate change isn’t just a specter on the horizon, a problem for future generations. It is a present challenge, and we must adapt.”(3) As the Secretary of Treasury and members of the Federal Stability Oversight Council (FSOC) develop a detailed understanding of the related financial risk, including 10 / Service Contractor / Fall 2021
both physical and transition risk of climate change, it will be critical to bring the Federal Government and private sector together to ensure all potential tools and resources are available to relevant agencies as they look to mitigate the identified risks on behalf of taxpayers. It is the policy of the United States to reduce costs to taxpayers and to protect taxpayers against catastrophic losses through prudent and established risk management techniques. As the Federal Government develops Climate Action Plans to strengthen its resilience and adaptive capabilities now is the time to ensure departments and agencies are equipped to evaluate and purchase risk transfer if a department or agency deems it necessary. Risk modeling, risk management and risk transfer are critical tools to help mitigate climate change-related fiscal risks to taxpayers which helps departments and agencies achieve their missions all while working to close the protection gap and increase the long-term stability of federal operations. 3 “Treasury Releases Climate Action Plan”, U.S. Department of the Treasury, October 7, 2021 (2) “FEMA Will Recover $1.042 billion in Reinsurance from the Private Reinsurance Markets”, FEMA, December 5, 2017 (3) “Peru government confirms $60m cat bond pay out on the way”, Artemis, Steve Evans, October 7, 2021 (1)
Professional Services Council
“The impact of natural disasters and extreme weather due to climate change will continue to stress capacity and funding resources at all levels of government.”