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.
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?
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.
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.”
As the Thomas Fire continues to climb the list of the top twenty largest California wildfires for both acres burned and structures destroyed, many in the insurance industry are asking how this fire, in addition to the other burned areas across Southern California, will impact their portfolio. A critical element in understanding the industry impact, but also the significance for an individual book, is the insured value of the burned structures. The Thomas Fire, which at 60 percent containment at the time of publication is already the second largest fire in California history with a reported burn area of 272,000 acres (110,074 hectares), has affected several different communities with wide ranges of average insured value.
Satellite image taken on December 5, based on observations of visible, shortwave infrared, and near infrared light. Image Credit: NASA
Wildfires are once again raging across California, this time focused in the southern part of the state. Prior to the ignitions, weather forecasts called for a significant Santa Ana wind event from Monday (December 4) through Thursday evening (December 7), driven by a high-pressure system across the western United States. The NOAA Storm Prediction Center noted in their Day 1 Fire Weather Outlookvalid for Monday, December 4, that, “A very strong surface pressure gradient… coupled with strong low-level northeasterly flow will easily support sustained offshore winds of 30-40 miles per hour (48-64 kilometers per hour) across parts of Ventura into Los Angeles counties beginning later this evening and continuing through early Tuesday morning. Wind gusts of 60-80 mph (96-128 km/h) will be possible across the mountains/foothills of these counties where channeling and terrain effects can locally enhance the already strong flow, with gusts of 45-60 mph (72-96 km/h) likely at lower elevations.”