Wildfire: A multilayered approach to a multilayered peril
Insurers now lean on purpose-built tools and scientifically derived data to manage shifting exposures and regulatory requirements.
Increasing heat, drought and shifting precipitation trends have combined to make wildfire “seasons” close to a year-round phenomenon.
And as spring comes earlier year by year, accelerated snowmelt allows vegetation to dry out sooner before the onset of summer temperatures. Meanwhile, human settlement pushes deeper into high-risk territory — wildland-urban interface (WUI) and intermix WUI areas — and raises potential loss exposure. Consider that Riverside County, Calif., has seen a a five-year jump of 242% in new construction, making it one of that state’s top counties by the number of housing units deemed at high to extreme wildfire risk, according to Verisk analysis.
This article is the third in a series that examines the changing scope and severity of catastrophe risk and how insurers bring new tools to bear against this peril.
See also: Severe thunderstorms and hail: A past, present and future risk
A growing toll
Wildfires generate a steady stream of expensive claims for many insurers. Based on data from the National Interagency Fire Center, the 2022 season exceeded 2021 in the number of fires and acres burned. More than 61,000 fires scorched nearly 7.2 million acres in 2022, up from 59,000 wildfires in 2021, when drought, intense lightning activity and extreme heat plagued vulnerable regions.
Two of the largest U.S. wildfires in 2022 occurred in New Mexico. The Calf Canyon/Hermits Peak and Black Fires each burned more than 325,000 acres, according to Verisk data. And the Marshall Fire near Boulder, Colo., demonstrated the dangerous and destructive way that wildfires can behave in areas where development is highly concentrated.
Multilevel risk management
While active wildfire behavior can be unpredictable, it’s easier to gauge underlying risk using quantifiable factors, which can then be correlated with individual property risk. Factors to capture include vegetative fuel, terrain, road access, wind patterns, zones subject to peripheral effects from wildfires, and mitigation measures.
Verisk analysis classified roughly 99% of the acres burned in recent years as at risk from wildfire. Overall, Verisk designates more than 4.5 million U.S. properties at high to extreme risk for wildfire, including more than 2 million California addresses.
Meanwhile, at the portfolio level, modeling can track the changing environmental dynamics that influence wildfires, including the effects of climate change.
The West’s new regulatory environment
California is especially challenging for insurers with respect to wildfire. New regulations on property coverage rating in wildfire-prone areas give more consideration to mitigation efforts. Among these are establishing defensible space, which minimizes combustible vegetation and other possible fuels near structures, and structure hardening, which includes fortified roofs, fire-resistant exterior materials, multi-paned and safety glass windows, and the sealing of gaps.
At the community level, entities such as the National Fire Protection Association, California’s Board of Forestry and Fire Protection, and the International Association of Fire Chiefs help to add further layers of mitigation.
But this problem is now extending to other states in the West.
Fortunately, insurers don’t need to build from scratch to meet rising risk exposure and rigorous requirements. Whether for underwriting, portfolio management or compliance, it can be faster, easier and more efficient for insurers to take advantage of purpose-built tools and scientifically derived data already available. These can help ensure appropriate coverage for policyholders and a clear view of overall wildfire risk in a book of business.
Dr. Arindam Samanta (Arindam.Samanta@verisk.com) leads property underwriting product management efforts in the areas of weather and natural hazards, including FireLine®, Verisk’s wildfire risk management tool for the insurance industry, and a range of other property risk assessment tools related to hail, wind, and lightning. Additionally, he supports ISO’s personal lines product innovation pipeline and agenda. Dr. Samanta did his academic and research work at the Indian Institute of Technology (IIT), Caltech, and Boston University.
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