Over the past quarter-century wildfires have accounted for billions of dollars of insurance losses in California in the United States and in Australia. The 1991 Oakland Hills Fire in California alone destroyed 2,900 structures and cost insurers more than USD 3.5 billion. In 2007 nearly a million people were temporarily displaced in southern California in the "October Fire Siege,” when 23 wildfires raged simultaneously, causing insured losses of more than USD 1.3 billion. And the 2009 Black Saturday Fires in Australia’s Victoria state burned through 1,700 square miles and destroyed more than 2,000 homes—costing insurers about AUD 1.5 billion.
AIR’s wildfire models are fully probabilistic and help insurers, reinsurers, and intermediaries manage risk for both individual policies and entire portfolios of properties. With their use, risk managers can better estimate potential losses and mitigate the impact of the next catastrophe.
Increasing Wildfire and Bushfire Losses
Losses from wildfires have been increasing. Populations in both the United States and Australia continue to spread into previously undeveloped forests, grasslands, and (in California) chaparral and (in Australia) eucalyptus environments—areas at high risk of wildfire. In the western United States, nearly 40 percent of new home development is in this "wildland-urban interface" (WUI), putting more insured property at risk every year. California, it is estimated, already has more than five million homes located in the WUI.
The AIR wildfire models incorporate at high resolution the factors that drive wildfire ignition and spread—and also those factors that contribute to or mitigate insured losses, such as the construction characteristics of potentially vulnerable structures.
The AIR models utilize the most comprehensive and up-to-date sources of information currently available on vegetation—its types, locations, densities, volatilities. Fire-spread algorithms take into account topography, local wind speeds, and fire suppression activities to produce realistic fire perimeters.
The AIR California model incorporates an Urban Conflagration Effect (UCE) that explicitly captures the possibility that a WUI fire might be transformed into an urban conflagration (such as the fire that occurred in Oakland Hills in 1991). The AIR Australia model explicitly captures the tendency of bushfires to cluster in space and time (as they did in Black Saturday fires). Clustering is a signature of catastrophic bushfire events in Australia, and being able to account for it is a requirement of many reinsurance treaties.
AIR currently offers wildfire and bushfire models for:
- California (U.S.)
Listed below are additional materials of interest to companies exposed to wildfire risk :