The Insurance Information Institute has released a report on the trends and impacts of wildfires in the U.S., using data from the Department of Interior it notes that from 1993-2012 fires, which includes wildfires amounted to 1.7% of insured catastrophe losses.
The report highlights some findings we discussed at Artemis last month, from international property information, analytics and data-enabled services provider, CoreLogic, which revealed that 900,000 U.S. residential properties are at high or very high risk of wildfire damage, amounting to a reconstruction value of more than $237 billion.
“Over the 20-year period, 1993 to 2012, fires, including wildfires, accounted for 1.7% of insured catastrophes losses, totalling about $6.5 billion, according to the Property Claims Services (PCS) unit of ISO,” says the report.
Although 1.7% is a relatively low contribution to global insured catastrophe loss totals, rising temperatures and increased migration to wildland areas is expected to result in a rise of wildfire activity, which would likely lead to the peril contributing a larger share of the insured catastrophe loss sum.
The report calls on data from the Institute for Business & Home Safety (IBHS), which claims that thirty-eight states have wildfire risks, “and the risk of wildfires keeps growing as more homes are built in wildland areas, some five million in California alone.”
Global migration to catastrophe prone regions of the world has been a key element of discussions surrounding efficient, successful catastrophe risk management in recent months.
As thousands, most notably in Asia, continue to migrate to coastal regions that are highly susceptible to water stress from storm surge, cyclones and intense rainfall, the regions vulnerability to increased levels of damages hikes.
And this is no different in the U.S. when considering the impact and potential of countrywide wildfires.
“The risk of wildfires is likely to continue to grow as temperatures rise, lengthening the fire season, and more people move into steep forested areas once largely uninhabited,” the report says.
Adding; “Fire is often spread by combustible fences and decks connected to houses.”
As the global population and asset values continue to move upwards, migration to once desolate areas is a natural occurrence. And as these regions are expected to experience more severe and frequent wildfires, the economic and insured loss total will likely move upwards.
The report does offer some important steps that could be taken to ensure that new and existing homes mitigate the severity and resulting costs of wildfire activity.
The study notes; “Researchers are discovering that embers blown by the wind during wildfires cause most of the fires that burn homes. Also, homes that are less than 15 feet apart are more likely to burn in clusters.”
To prevent this the study notes suggestions of the IBHS; “Among the preventive features recommended in the IBHS study were non-combustible siding, decking and roofing materials; covered vents; and fences not connected directly to the house. In addition, combustible structures in the yard such as playground equipment should be at least 30 feet away from the house and vegetation 100 feet away.”
While the prevention of the actual occurrence of a wildfire is sometimes unavoidable prevention methods offered by the IBHS can go a long way in cutting down the costs.
Similarly, the use of risk transfer mechanisms such as insurance, reinsurance, insurance-linked securities (ILS) and catastrophe bonds provide commercial and residential property owners with vital protection following an event.
Just last month Chubb Group sponsored a $250 million catastrophe bond transaction through its East Lane Re vehicle, East Lane Re VI Ltd. (Series 2015-1), which covers multiple U.S. perils, including wildfires.
For details on this transaction and other cat bond deals that protect against wildfire, like the USAA’S Residential Reinsurance cat bond series, see the Artemis deal directory.
Discussed in the Insurance Information Institute’s study, and again noted previously by CoreLogic, 2014 witnessed the second lowest amount of wildfire events in the U.S. and also ranked second for the lowest volume of acreage burnt, in both instances to 2013.
However, with the potential for wildfires to occur in more built-up areas of the U.S, amplified by intensified migration to wildland areas, less events doesn’t necessarily mean lower volumes of economic and insured losses.
It’s also often the case that areas that are at very high risk of wildfire activity experience higher re/insurance premiums, highlighting the benefits offered by the wider risk transfer market in providing innovative, affordable protection options and minimising the financial impact.
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