California on Fire: The New Normal?

In 2018, the deadliest and most destructive wildfire in California history burned for 17 days and was finally contained on November 25 after a bout of much needed rain. The Camp Fire began in Butte County in Northern California, claimed more than 85 lives and burned some 19,000 structures—more than three times the number of structures of last year’s Tubbs Fire. In Southern California, the Woolsey and Hill fires, which began at the same time as the Camp Fire, charred more than 100,000 acres.

The rising costs of wildfires

According to Verisk Analytics, 2 million homes in California have high to extreme risk of wildfires, with the highest risk located in the northern part of the state. Just last year, hundreds of wildfires ignited in Napa and Sonoma counties in October, destroying 9,000 homes and causing more than USD 16 billion in insured losses.

The back-to-back record-setting years of wildfire losses in California may be a sign of the new normal. While a changing climate may play a role in the frequency, intensity, and duration of wildfires, the meteorological and hydrological factors are complex. A major factor that is well understood, however, is the rapid growth of population in the wildland-urban interface (WUI)—the area where human development intermixes with the wildlands— and is most at risk from wildfire.

How are you managing a growing wildfire risk? View the infographic

The insurance impact of the California wildfires

The 2017 fires in California prompted the introduction of 17 state insurance bills. Among these are requirements for insurers to update replacement costs every other year at the time of renewal (to reflect the rising costs of repairing/rebuilding); limits on insurers’ ability to not renew policies after a disaster; and limits on insurers’ ability to recoup losses from utility companies in cases where a utility company’s negligence or lack of oversight contributed to a fire. We have yet to know what the full impact of the 2018 California wildfires will be.

Managing wildfire risk using AIR’s model

With rising losses, companies can no longer rely on historical experience to manage wildfire risk. The AIR Wildfire Model for the United States, covering 13 western states, uses detailed data on weather, fuels, seasonality, and landscape ecology to capture the potential for fire ignition and the spread of fire through the wildland-urban interface and beyond.

AIR’s physically based, stochastic approach can help companies develop effective pricing, underwriting, and portfolio management strategies. Insurers can also use AIR’s model, which includes secondary modifiers for defensible space and the use of fire-resistant building materials, to incentivize wildfire risk mitigation.

To learn more about AIR’s model, view the webinar

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