Subscribe to Our Blog
At the Casualty Actuarial Society (CAS) Spring Meeting, I had the pleasure of moderating a session entitled, What You Don't Know about Wildfires… Can Cost You. The topic drew a lot of interest, as 2017 was the most destructive and costly wildfire season ever recorded in the United States. The devastating wildfires affecting Northern California in October and Southern California in December claimed 43 lives1 and caused an estimated nearly $12 billion of insured losses.2 While California claimed the majority of 2017 wildfire losses, only about 13% of the total U.S. acres burned were in that state. According to the National Interagency Fire Center, less densely-populated Montana and Nevada saw an even greater amount of burn. In total, wildfires scorched nearly double the 2016 area.
While 2017 was a record wildfire year, the big question is whether it was an outlier or the start of an increasing trend. In our session, we learned there are factors working for and against the increase in wildfire losses.
Climate change is one factor pointing to increased wildfires. Temperatures are rising and drought is becoming more frequent. While those conditions don’t start wildfires, they do provide the fuel that helps them spread quickly, becoming more dangerous and difficult to contain. 2017 certainly provided plenty of wildfire fuel, as it was the third warmest year ever recorded.3 Similar to other natural catastrophes, climate change increases the probability of seeing more severe wildfires and greater losses.
Climate change doesn’t start fires, but humans do. In fact as many as 90% of U.S. wildfires are started by people.2 Unattended campfires, burning debris, discarded cigarettes and arson are some of the ways people can start wildfires. Adding to the problem, more people are moving to areas close to forests or natural vegetation, known as the wildfire-urban interface (WUI). The WUI is the fastest-growing land use type in the contiguous United States with 41% growth in new houses from 1990 to 2010.4 The increase of people living near vegetation causes both frequency and severity issues. There is greater likelihood of human-generated wildfire and there are more homes standing in its path. According to a Verisk Analytics report, about 4.5 million U.S. homes are at high or extreme risk of wildfire,5 with nearly half of those dwellings in California. The more people move into the WUI, the greater potential for larger wildfire losses.
There is some good news. We understand how homes ignite and are aware of ways to reduce ignition risk. The majority of homes lost to wildfire ignite from a nearby fire’s flying embers. Actions to reduce the chances of ignition include clearing dead leaves from roofs and gutters, installing mesh screening on vents, and moving flammable materials like mulch, plants and firewood away from exterior walls. Those are just a few recommendations from the National Fire Protection Association, which runs the Firewise USA program to educate communities on reducing wildfire losses. If homes don’t ignite, they won’t burn. Insurers are taking note of these kinds of programs’ successes. USAA found Firewise community residents had a lower loss ratio than those in non-Firewise communities and now offers a discount to Firewise community homeowners.
Climate change and shifts in population demographics are fueling more extreme and costly wildfires. With more homes at risk of damage, efforts to educate homeowners on ways to prevent the spread of wildfire will be crucial if there is hope that the increasing trend in wildfire losses can be curtailed.
Zach Brogadir is a Consulting Actuary with Pinnacle Actuarial Resources, Inc. in the Chicago, Illinois, office and has over eight years of experience in the property/casualty industry. He has considerable experience with the analysis of unpaid claim liabilities, ratemaking/funding indications and predictive analytics for a variety of personal and commercial lines of business. Zach is a Fellow of the Casualty Actuarial Society (CAS) and a Member of the American Academy of Actuaries (MAAA). He serves on the CAS Examination Committee and is the President of the Midwest Actuarial Forum.
« Back to Blog