“We are seeing wildfires in the United States grow to sizes that were unimaginable just 20 to 30 years ago,” U.S. Forest Service Chief Tom Tidwell told Congressional legislators in March. “We expect 2015 to continue the trend above the average activity.”

Technology combats wildfires

Worsening fire conditions brought on by the lack of rain and snow pushed Verisk Insurance Solutions to expand its satellite data driven FireLine wildfire risk management service into Montana, Oklahoma and Wyoming on May 4. Use of data from FireLine has proven to improve insurer underwriting and rating decisions in California and nine other western states--Arizona, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah and Washington.

FireLine provides insurers with information to assess the effects of fuel, slope and road access during wildfires. FireLine develops a score for each primary risk factor and an overall wildfire hazard score.

A view of the Round fire at Wheeler Crest near Bishop Calif. on Friday Feb. 6, 2015. Firefighters gained the upper hand on a wind-driven wildfire that destroyed 40 homes, burned nearly 11 square miles and forced about 150 people to leave two small California towns at the eastern base of the Sierra Nevada. (AP Photo/Jim Stimson via CalFire)

“FireLine helps insurers manage wildfire risk at individual risk and aggregate risk levels,” said Steve Lekas, vice president of property underwriting at Verisk Insurance Solutions.”

Carriers underwriting HO risks

Insurers like ACE have already had extensive experience managing wildfire exposures for high net worth HO risks and plan to continue their strategy regardless of drought conditions.

ACE completed on April 1 its acquisition of personal lines accounts worth $891 million in gross written premiums from Fireman’s Fund, now called Allianz Global Corporate & Specialty. The renewal rights deal included existing reinsurance liabilities and access to a network of 1,100 Fireman’s Fund agents and brokers.

The Allianz-ACE deal will help ACE diversify by growing its profitable high net worth home business, especially in the West where Fireman’s Fund was a major player. ACE personal lines and small commercial lines last year posted a robust underwriting profit with a 91.1% combined ratio from $909 million net premiums earned. In 2013, ACE personal lines and small commercial lines put up a 94.7% combined ratio from $812 million NPE.

Allianz’s U.S. personal lines arm jettisoned its United States personal lines business so the Germany-based carrier can focus on its more profitable commercial lines business totaling in $3 billion gross written premiums. Allianz’s personal lines notched a 120% combined ratio in 2014, a big increase from the 103.5% combined ratio the insurer recorded in 2013. Most of last year's losses stem from fire-related homeowner losses last year especially in California.

ACE Private Risk Services Division President James Williamson said ACE will use state-of-the-art technology and methods that are very similar to those that were used by Fireman’s Fund for homeowner accounts.

“As a result of ACE’s acquisition of the renewal rights to the personal lines business of Fireman’s Fund, we expect to offer replacement policies to the vast majority of Fireman’s Fund policyholders, including those who have homes in wildfire-prone areas. The underwriting teams at both companies had extensive experience managing wildfire exposures,” he said.

A wildfire approaches homes on Wednesday, May 14, 2014, in San Marcos, Calif. Flames engulfed suburban homes and shot up along canyon ridges. (AP Photo)

California HO rates for accounts in major wildfire prone areas could rise in excess of 50 percent of what rates were 25 years ago. The disappearance of major HO writers like Allianz will shrink overall capacity forcing insurers to hike rates particularly in wildfire zones.

“PCI encourages people to shop around if carrier raise rates significantly,” advises Nicole Mahrt, PCI’s Western Region Public Affairs Director.

Drought hits crop carriers

The California crop insurance marketplace will lose some of its luster as a state where insurers have historically chalked up big profits. This might mean crop carriers will reduce agency appointments or withdraw from the state.

Central Valley farmers this year will let up to 500,000 acres of additional crop land go fallow when water deliveries are shut off. Last year growers grew crops on 7.5 million acres of farm land.

“If insurers accumulate major losses from the West Coast drought, this will affect their bottom lines and will force some carriers to pull away from the state,” said Dominic Fino, an agent at Hanford-based Golden State Crop & Insurance Services.

Crop insurers are expecting federally subsidized crop rates for major crops like corn could fall as much as 23% because the Congressional Budget Office forecasts commodity prices for corn and other major crops are falling. Farmers would see crop insurance rates fall, but crop brokers will see commission revenue declines.

Daniel Borsuk is a career property and casualty insurance industry journalist who wrote articles for Crittenden Research Inc., from 1989 through 2014. Before joining Crittenden, he was a writer or editor for newspapers in San Francisco, Yuma, Tucson, and Carson City. Borsuk lives in the San Francisco Bay Area.