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 research shows that over 80 percent of wildfires are human induced
- 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.Continue reading