U.S. Wildfire: Better Strategies Needed for a Growing Catastrophe Risk

What will the 2019 wildfire season bring across the United States?

Across the United States, around eight and a half million acres burned in 2018, nearly three times the annual average during the 1980s and 1990s. That is the equivalent of the entire state of Maryland burning in one year. Last year’s Camp and Woolsey fires in California burned a total of 245,000 acres – these two fires alone burnt a combined area around three times the size of Detroit, destroyed more than 12,000 structures and killed 80 people.

It is getting hard to argue that the size and ferocity of the most recent wildfires across the U.S. are just anomalies, the evidence just does not support these events as being exceptional anymore.

As California’s then Governor Jerry Brown stated at a press conference as the Camp and Woolsey fires raged, these wildfire events are “… the new abnormal …” and that events may worsen over the next few decades. He added that “… the best science is telling us that dryness, warmth, drought, all those things, they’re going to intensify.”

Wildfire in a pine forest close to the town of Moccasin, Northern California

Statistic after statistic points to this intensification. The United States Department of Agriculture (USDA) reported some (slightly) good news this month, stating that only an estimated 18 million trees, many of these being Sierra Nevada conifers, had died in California during 2018. This figure was down from 2017 (27 million) and an astonishing 62 million trees in 2016. A combination of a seven-year drought and bark beetle infestation had killed more than 147 million trees since 2010. The NBC report adds that in some sections of the Sierra Nevada in California, ninety percent of the trees had died, with trees packed in as dense as 260 per acre. These dead trees alone represent a significant fuel load.

As wildfire risk is changing, so must the insurance industry’s management of it adapt. A peril that was once treated as an attritional loss needs to be managed it in the same way as other peak perils such as hurricanes and earthquakes. Since 2014, devastating wildfires have unleashed more than US$30 billion dollars in claims. In fact, five of the 10 most destructive wildfires have occurred in 2017 and 2018 alone.

Wildfire Risk: New Rigor Required

Treating wildfire as a peak peril means that the insurance industry needs better ways to manage wildfire risk comprehensively for underwriting, reinsurance purchasing, and capital management.

Achieving precision and confidence in risk selection, pricing, and portfolio management for the wildfire peril requires effective modeling. Legacy wildfire models based on historical data and outdated fire simulation approaches can give a general indication of risk relativity, but the “new abnormal” requires new approaches.

This short video (below) explains a few of the benefits of the newly-released RMS United States Wildfire High-Definition (HD) Model, which captures the full impact of wildfire at high resolution to deliver an unprecedented understanding of the complex behaviors that characterize fire spread, ember accumulation, and smoke dispersion.

With the new wildfire season now only months away, the industry is under pressure to demonstrate that it has a better understanding of wildlife risk in the United States. The new RMS model helps achieve this with the ability to assess wildfire risk across all 48 contiguous U.S. states, account for the devastating effects of embers that rapidly accelerate fire spread, and reflect mitigation measures around a structure. Linking advanced science, high resolution exposure analysis, and the ability to probabilistically analyze a new peril based on the simulation of 18 million events, all gives the industry a new dimension in managing this risk.

Click here to visit our dedicated wildfire microsite and to arrange a free consultation to assess your exposure to wildfire risk.

Chris Folkman is a senior director of product management at RMS, where he is responsible for specialty lines including terrorism, casualty, wildfire, marine cargo, industrial facilities, and builders' risk. He has extensive experience on both the broker and carrier sides of insurance, where he has led many aspects of property and casualty operations including underwriting, pricing, predictive analytics, regulatory affairs, and third-party commercial coverage and claims.

Prior to RMS, he was a managing director at CompWest Insurance Company, a workers’ compensation start-up that was acquired by Blue Cross Blue Shield of Michigan. Chris holds a bachelor's degree from Stanford University. He is a licensed insurance broker and a Chartered Property and Casualty Underwriter (CPCU).

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