Reassessing customers' risk profiles during wildfire season

Wildfire season officially began in May and in 2022, we’ve already seen fires in 13 states across the U.S. Many of us, myself included, remain haunted by the images of last year’s Dixie Fire in California. The massive fire engulfed five counties in California, making it the largest recorded fire in the state’s history. So large, in fact, it took over three months for the fire to be fully contained.

It often seems like the largest fires we hear about are in California, but wildfires can happen anywhere. As I write this piece, Florida is battling two separate wildfires in the Panhandle. Florida is among many states with threats of looming wildfires, from Texas to North Carolina, Montana to Alabama and Oregon to Georgia, to name a few. These days, it seems like there is some risk of wildfire wherever you live. As a New Hampshire resident and an avid hiker, I know how quickly fires can pop up and spread.

I work with many insurers who constantly grapple with how best to protect customers. Each wildfire season brings new challenges and new lessons that insurers apply to the following season, hopeful that these changes provide the full protection package. With the unpredictability of fires — where they begin, how they move and the power behind each — it’s impossible to have ironclad protection. However, insurers can get pretty darn close with new technologies and available data.

Typically, insurers look at historical data and proximity to vegetation to assess an address’s risk. If an address is in a location that has previously experienced wildfire threat, or if that location is surrounded by trees and wooded areas, the risk profile is deemed high. While these attributes are critical to a risk assessment, they’re not the only things insurers should be considering.

Here are three key issues for insurers as they reassess their customers’ risk profiles going into wildfire season.

1. It’s not just about historical data.

Historical data should be the starting point for any risk profile. It provides context for known wildfires and their movement. But as we’ve seen, particularly in recent years, wildfires are unpredictable. They’re not specific to one state, one region, one climate — they reach from the east coast to the west coast, from cool climates to hot climates.

Real-time data coupled with historical data can be one of the best predictors of where a wildfire may spark up next. In March, the National Oceanic and Atmospheric Administration (NOAA) launched GOES-T, the third in its series of advanced weather satellites. Once in orbit, the satellite will be able to track wildfire hot spots and predict changes in the wildfire’s movement, intensity and smoke output. This next-gen, real-time technology will enhance historical data and validate the level of risk a particular fire poses to the region.

In addition to satellite imagery, monitoring the current movement of insects, disease and local mitigation can be a tremendous indicator of real-time threat. There are many insects and diseases that cause vegetation defoliation and tree mortality in the U.S. Tree mortality happens in phases, and each phase brings a host of different burning behaviors. Wildfire severity and probability are directly tied to the health of the forest, and this element is difficult to assess but essential to capture in a wildfire risk assessment.

Local mitigation or land features can also have a positive or diminishing effect on fire behavior. We often think of local mitigation as federal or state fuel reduction projects. However, more common forms like golf courses, bare ground, large water bodies and even some agricultural crops — whether man-made or natural — change fire behavior for the better and must be integrated into a risk assessment.

2. Understand the migration of people.

COVID-19 has completely changed the way people move. For centuries, urban areas have been the most densely populated areas within the U.S. Because of the massive scale of the urban landscape, buildings stand in place of vegetation, limiting the risk of severe wildfire damage. However, over the last two years, as more businesses support work-from-home employment, people are taking the opportunity to migrate to more rural areas. “Smalltown U.S.A.” is growing rapidly, as are the number of residential addresses near areas of high vegetation.

Insurers must now consider not only the risk of an environment but also the risk of an increasing population. In fact, an estimated 90% of wildfires are man-made, whether by accident, intent or negligence. With more people comes an increased risk for wildfires, whether from unattended lumber or malfunctioning equipment at new building sites or uncontrolled campfires by novice hikers taking in their new surroundings. The learning curve for former urbanites can be steep, and insurers must be prepared.

3. Building health is as important as proximity.

While most things in life are about location, that’s not always true about wildfire risk. One of the most often-overlooked attributes of wildfire risk is overall building health. In the case of building health, age is not just a number. In fact, the older the building, the less likely it has been updated with fire-resistant materials. Contrarily, many older buildings are filled with highly flammable materials.

Newer builds, especially those in historically prone wildfire areas, are now being built with fire-resistant materials that can slow down and, in some cases, even stop the spread of a fire. When assessing the wildfire risk of an address, insurers must also consider a building’s overall health and understand what fire-resistant materials have been used, such as glass windows, concrete, stucco, gypsum boards, brick and more.

As we go into yet another unpredictable wildfire season, two things will be certain: risk is imminent, and the more we can enrich existing data, the more equipped insurers will be to protect their customers and themselves. Luckily, there are technologies now available that can help account for physical, climatic and man-made variables, both inside and outside the public domain, that can paint a picture of wildfire exposure for underwriting, pricing, portfolio analysis and loss estimation. The opportunity to mitigate risk is very real; insurers just need to take advantage of the resources available to them.

Jean Sullivan (Jean.sullivan@precisely.com) is the Vice President Insurance Sales Americas at Precisely.

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