Understanding Wildfire Risk: Capturing the Full Spectrum of This Increasing Threat
Wildfires are unplanned events governed mainly by climatological conditions. They occur regularly in undeveloped land and spread over woodland, brush, and grass as direct consequences of lightning strikes or human activities. Wildfires can have disastrous consequences, although catastrophic wildfires, in terms of insured property damage, are relatively uncommon. Assessing wildfire risk therefore requires understanding of the likelihood of fire occurrences and their damage severity.
Major wildfires in Canada, Tennessee, and California have set off alarm bells in the insurance industry. The market needs better tools for managing this risk, as well as to understand exposure accumulations and return period loss metrics. Probabilistic models can account for the conditions that turn a small wildfire into a catastrophe. They also provide insights on the effects of increased development where urban areas and undeveloped lands meet, fire suppression, and mitigation measures.
In 2018, the biggest impact on the insurance industry will be the introduction of new tools to quantify wildfire risk, including a new probabilistic model from RMS®. This model will include critical insights gathered from recent events, such as the Northern California fires, and provide the industry with the latest research on building materials and mitigation measures to better manage and price this peril.
RMS solutions are designed to answer important questions, including:
+What is the 100-year wildfire loss for the U.S. or Canada?
+With the increase in exposure, will we see a US$10 billion wildfire event loss?
+What role do mitigation measures play in the probabilistic view of risk?
Continental Coverage at High Resolution
Delivering wildfire risk quantification at continental scale, and high resolution across the entirety of the contiguous U.S. and Canada, provides the realistic representation of fire behavior and variations across different regions. This enables loss metrics from the portfolio level down to the individual location.
Assessing the Impact of Embers
The contribution of embers to wildfire hazard severity inside and outside a fire perimeter is a critical component in RMS wildfire products. Without explicit representation of this element, the spatial coverage and distribution of the hazard is incomplete.
Understanding How Smoke Damage Contributes to Event Losses
In addition to direct damage from burning structures, losses can arise from smoke damage. Burn and smoke are covered in a standard homeowner’s policy, and quantifying the relative contribution of each sub-peril could present new opportunities for insurance products, such as smoke cleanup.