It has been a year since the deadliest and most destructive wildfire in California’s history. The Camp Fire burnt some 153,336 acres, starting at Camp Creek Road, two miles from the small community of Concow, Butte County in Northern California. A fire was reported at 6.33 a.m. local time on Thursday, November 8, 2018, and spread to Concow within 30 minutes and by 8 a.m. had moved quickly west to the town of Paradise (pop. ~26,800).
The town was devastated within hours, as embers driven by 50 miles per hour winds created an urban conflagration which saw 80 to 90 percent of the town destroyed. The fire took 15 days to fully contain. Overall, the fire destroyed a total of 18,804 structures, and killed 85 people.
The insurance industry is also still reeling after both last year’s and the previous year’s record-breaking California wildfire seasons with US$23 billion in insured losses. All eyes are on the current events as a quiet early season has morphed into an active late season, as the Kincade Fire in Sonoma County that started on October 23, burnt some 77,758 acres and destroyed 374 structures according to CAL FIRE. The Kincade Fire is now the largest ever wildfire in Sonoma County.
The last two North America wildfire seasons have seen total insured losses skyrocket to over US$23 billion – compared to 1991-2010 where average annual losses totaled US$600 million. Wildfire has staked its claim as a major U.S. peril, with events now consistently topping the multi-billion dollar mark. Four of the five all-time biggest wildfire events occurred in 2017 and 2018, and seven wildfires exceeded the US$1 billion threshold in this timeframe.
When the WUI is Not Enough
Wildfire risk can no longer be managed through accumulation strategies, hazard zoning, or simple extrapolation of historical data because the fundamental drivers of wildfire risk are changing:
There are 30 percent more buildings at risk than there were 30 years ago
Recent weather patterns show that the fire season is getting hotter and drier than in the past
All these factors mean that past losses cannot be easily extrapolated to predict future risk levels. Instead, the industry needs tools from a probabilistic catastrophe model to properly capture future wildfire risk.
Wildfire risk is not limited to the Wildland Urban Interface (WUI) anymore. The figure below shows DINS (Damage Inspection) data from CAL FIRE overlaid on the burn perimeter for the 2017 Tubbs Fire in Northern California. Almost half of the destroyed structures in that fire came from areas considered to have no wildfire risk since they are in sub-urban areas classified as non-burnable by existing risk scoring methods. It is not sufficient to manage insurance portfolios with simple hazard zoning approaches.
With the start of the U.S. wildfire season on the horizon, in the latest edition of EXPOSURE – the RMS magazine for risk management professionals, wildfire is our lead story, as we examine whether it now needs to be considered a peak peril. The 2017 and 2018 California wildfires have forced one of the biggest re-evaluations of a natural peril since Hurricane Andrew in 1992, as the industry begins to comprehend the potential loss severities.
The article argues that there are similarities with U.S. wildfire as there was with North Atlantic hurricane in 1992 – catastrophe models were relatively new and had not gained market-wide adoption, and many organizations were not systematically monitoring and limiting large accumulation exposure in high-risk areas. Find out why a rethink is required about how the risk management industry currently analyzes the exposure and the tools it uses.
A new wildfire season looms on the horizon across the United States, and as the last two years of huge wildfire insured losses and extensive devastation to lives and property clearly illustrates, wildfire is no longer an easily manageable loss for the (re)insurance industry – but a new peak peril.
So, what could be in store for the 2019 season? The industry is reeling from back-to-back seasons with losses over US$10 billion. This is unprecedented even during a period when average losses between 2011-2018 were at US$3.7 billion. And looking back, this is up 40x compared to 1964-1990, where losses were below US$100 million in today’s prices. What is changing with this peril, what are the risk drivers that we need to look out for?
Why the Saffir-Simpson Hurricane Intensity Scale had five levels we don’t know. The digits on a hand? Better than three, but lower resolution than the dozen rungs for wind speeds or earthquake intensity? Whatever the reason it seems to work.
In the late 1960s, Herbert Saffir, a Florida building engineer, was sent by the United Nations to study the hurricane vulnerability of low-cost housing in the Caribbean. He realized something was needed to rank hurricane destructiveness. Saffir had some “Richter envy” from observing the ease with which seismologists now communicated with the public. In 1971, he contacted Robert Simpson, head of the National Hurricane Center to help link damage levels with wind speeds.
Seeing the opportunity to communicate evacuation warnings, Simpson also added details around the height of advancing storm surges. Better information was clearly needed, after the loss of life in Hurricane Camille on the Mississippi coast in 1969.
On January 30, Judge William Alsup, district judge for the Northern District of California presided over a hearing to discuss the inclusion of wildfire prevention in a 2016 Probation Order mandated to Pacific Gas and Electric (PG&E) in the aftermath of the 2010 San Bruno gas explosion that left eight dead.
An order to add conditions to their existing probation, filed on January 9, aimed to “…protect the public from further wrongs by the offender, to deter similar wrongs by other utilities, and to promote the rehabilitation of the offender…” The order included the determination from CAL FIRE that PG&E caused 18 wildfires in 2017, with CAL FIRE continuing its investigations into the causes of the more recent Camp Fire last year.
From major wildfires just over four months ago, and now major flooding, Northern California seems to leap from one perilous state to another. This time, rainfall from a “potent atmospheric river”, as described by the National Weather Service, caused flooding to over 3,000 properties in Sonoma County. This atmospheric river – a flowing column of condensed water vapor pumped up from the Tropics which can be up to 375 miles (603 kilometers) wide – started delivering rain and snow into the region late on Sunday, February 24.
The small town of Guerneville (pop. ~4,500) fared worst, reporting nearly 21 inches (529 millimeters) of rainfall in just 72 hours by 5 p.m. local time on Wednesday, February 27. The source of the town’s flooding was the Russian River, which flows from Mendocino County through to Sonoma County, reaching a maximum level of 45.5 feet (13.9 meters) at Johnson’s Beach, near Guerneville. This exceeded the defined 40 feet (12.1 meters) threshold for a major flood at this point, with local media reports stating that this is the worst flooding since New Year’s Day in 1997, when the river rose to 45 feet (13.7 meters). The nearby Napa River also crested at 26 feet (7.92 meters), one foot above the flood stage.
The town of Guerneville, which was originally built on a meander in the river, on February 27 was declared by the Sonoma County Sheriff’s Office “… [as] officially an island …” as all roads in an out of the town were flooded. 4,000 residents in both Guerneville and Monte Rio (pop. ~1,200) were under evacuation orders until Friday, March 1.
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.”
While California wildfires may seem far removed from Atlantic storms, for capital markets investors the fires may make the difference to how 2018 is remembered. Insurance Linked Securities (ILS) eyes are now trained on multi-peril aggregate catastrophe bonds.
When I was a kid, my favorite breakfast cereal was Kellogg’s Sugar Frosted Flakes. As a teenager in the 1980s, I recall that the name changed to Frosted Flakes. In 1983, to appeal to a more health-conscious consumer, Kellogg simply dropped “sugar” from the name. And around the same time, Kellogg’s Sugar Smacks became Honey Smacks. There didn’t seem to be a dramatic reduction in sugar. Even today, sugar makes up over 55 percent of the total content of Honey Smacks and is the lead ingredient. Honey trails at fourth. The idea was … if the consumer didn’t see the word sugar, they wouldn’t necessarily jump to the conclusion that it was loaded with sugar. One could argue that this was just a marketing ploy – yet most would agree it secured marketing appeal by removing a potential distraction from its name.