Regulation, mitigation demands in an evolving wildfire world
Wildfires can be natural occurrences, but their behavior, timing, location and conditions are becoming more unusual.
While the number of wildfires in the U.S. has declined slightly over the last decade, the area burnt each year and the average size of wildfires has increased since the late 1990s. The number of fatalities and property losses also increased after 2017, with four of the five years from 2017 to 2021 being considerably worse than any year since at least 1990.
Related: The 10 most devastating fires in U.S. history
Globally, it is estimated that 5% of wildfires start naturally. In the U.S., 85% of wildfires are estimated to be started by humans. In Canada, which has a much lower population density, more than half of wildfires are sparked by lightning.
Wildfires can be natural occurrences, but their behavior, timing, location and conditions are becoming more unusual. Look at the catastrophic wildfires in Hawaii in 2023. They occurred in a place that, while it had a history of wildfire, had not experienced such catastrophic events historically, and the loss of life and property was on a scale not experienced before.
Our flammable landscapes
It is easy to pinpoint a key cause for the changing pattern in wildfires: Climate change. Scientists have long predicted a consequence of this phenomenon would be an increase in the frequency, intensity and pervasiveness of wildfires worldwide. Today, record-breaking fires are appearing more frequently, scorching landscapes that were once rarely touched by flames.
Severe weather pattern changes are believed to play a role in increasing North American wildfire risks in areas previously deemed “low risk.” These include the Appalachians, Southern Rocky States, Texas, Alberta and British Columbia, which are becoming areas of concern for catastrophic wildfire insurance losses.
The year 2022 was the third in a row that unprecedented wildfire events caused significant environmental and economic damage in the European Union, specifically Italy, Greece, Portugal and Spain. Some 2 million acres (or 800,000 hectares) burnt, almost two and a half times as great as the average for the previous 15 years. Recent blazes in Argentina and Chile show South America is also being impacted.
The size of these often-uncontrollable fires has led to new terminology in the firefighters’ lexicon: a “megafire” is when more than 100,000 acres (or 41,000 hectares) of land burns in a single fire, while a “gigafire” is a newer term for a monster that burns over 1 million acres (or about 405,000 hectares). Gigafires remain rare but their frequency is increasing. Six of the 12 largest megafires on record worldwide have occurred in the last 20 years.
Modeling the risk
Far more interest is being applied to modeling wildfires than a decade ago. However, modeling the potential insured losses from wildfires is extremely difficult. It is not as probabilistic as hurricanes or earthquakes. The large number of humanmade and natural factors make this risk exceedingly complex. The insurance industry is continually developing and updating hazard zones and loss simulation models to improve risk assessment, but we are probably still in a reactive phase.
In addition to climate change, four factors make landscapes more flammable: land use, human activities, invasive species, and past fire suppression policies.
As our urban areas expand into wildland, it can increase the likelihood of fires because we disrupt natural fire regimes, or the characteristics of fires in an ecosystem over a period of time. This can lead to more severe and less predictable fires. Invasive species can also play a role as they often grow more rapidly than native plants and can create conditions more prone to burning.
Invasive grasses played a significant role in the 2023 Hawaii wildfires that destroyed the town of Lahaina and claimed more than 100 lives. For example, Guinea grass can reach a height of 10 feet (3m). Such grasses tend to dry earlier in summer and decompose more slowly, which creates readily burnable fuel.
Past fire suppression policies aimed at extinguishing wildfires as quickly as possible led to an accumulation of underbrush and deadwood in many forests. This build-up has created more combustible forests within increasingly populated regions.
Unique among the Acts of God
Climate change is intensifying the impact of many natural catastrophes. Flash, river and surge flooding are becoming more destructive; hurricanes are more intense; and droughts are longer and more severe.
Wildfire is unique among other “Acts of God” in that humans have the ability to directly cause wildfire events, but also in many cases stop or reduce the scale of them. The role of humans introduces insurance liability exposures to parties whose activities might trigger wildfires.
Companies have been subject to litigation because of negligence. In California, PG&E, the state’s largest utility company, filed for Chapter 11 bankruptcy in January 2019 after facing potential liabilities of $30 billion from several fires. These included the November 2018 Camp Fire, the deadliest and most destructive in California history.
Preparing for fire
Given the changing nature of wildfires, companies must assess their potential exposure and develop appropriate plans to mitigate risks. They need to think about resilience and sustainability and determine how the environment around their assets is changing.
The triggers for wildfires and their behavior once they start are complex. Companies need an organizational understanding about the threats of first- and third-party exposures, including how they could trigger or exacerbate a wildfire event. They also require comprehensive risk mitigation planning and to be assured of external support from their insurers and research and emergency response organizations.
Changing regulations
In response to wildfires, policies and regulations are changing on both sides of the Pacific to manage and mitigate the risks. Following the Black Summer bushfires, Australian states have proactively reviewed and adjusted their fire management and land use policies, especially regarding building codes and standards, and land management and fuel reduction.
Similar trends are observable in the U.S., where states like California have tightened regulations on utilities, requiring them to update equipment, implement power shutoffs under extreme fire risk conditions, and better manage vegetation around power lines.
The trends are clear: Wildfire risks are increasing, legislation is driving a duty of care, and companies need to be on top of this.
Jenise Klein, CPCU, is regional head of Property for North America at Allianz Commercial. Any opinions expressed here are the author’s own.
The original version of this article first published in Allianz Commercial’s client magazine and is republished here with permission.
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