AIR Worldwide Corporation has released its U.S. wildfire model, a probabilistic model designed to help insurers understand the location of their exposures and to estimate potential losses from wildfires. The model will help insurers, reinsurers, and intermediaries manage wildfire risk both for individual policies and entire portfolios of properties in California.

Nationally, wildfires have cost the insurance industry more than $5 billion since 1980 with a majority of the losses occurring in California, according to AIR. The 2003 wildfires in Southern California cost insurers more than $2 billion. Together, the fires burned more than 750,000 acres, destroyed 3,700 homes, and resulted in the deaths of 24 people.

"The growth in insured losses from wildfires is a result of the same broad demographic trend we've observed with respect to other perils–namely, increasing property development in high-risk areas," says Jayanta Guin, vice president of research and modeling at AIR. "In the case of wildfires, we are witnessing property growth in the buffer zone between wildlands and the urban environment. According to U.S. Fire Administration statistics, nearly 40 percent of new home development in the western United States is occurring in this wildland-urban interface, putting more insured property at risk every year."