1.2 million U.S residential properties across 13 western states are currently at high or very high risk of damage from wildfires, according to a report from CoreLogic. This represents a combined total property value estimated at more than $189 billion.
CoreLogic, a leading residential property information, analytics and services provider, has published its 2013 CoreLogic Wildfire Hazard Risk Report, which looks at the exposure to residential property from the wildfire peril.
Of the 1.2 million properties identified as at high or very high risk, CoreLogic said that just over 268,000 homes fall into the “Very High Risk” category alone, accounting for a total residential property exposure of over $41 billion.
From the press release:
In addition to providing a property-level categorical risk rating for the total number and value of homes exposed to wildfires, the CoreLogic Wildfire Risk Model used to develop the report also assigns a numeric risk score to each property, ranging from 1 to 100. This separate score indicates the level of susceptibility to wildfire that accounts for risk not only associated with the physical property itself, but also located in close proximity to the property boundary. When expanding the analysis through the CoreLogic Wildfire Risk Score to include the surrounding area, more than 1.5 million homes are assigned the highest Wildfire Risk Score (81-100), representing a combined potential property value of more than $224 billion.
“Recent trends have proven that the risk of wildfire damage is a real and immediate threat to many homeowners in the western U.S. Awareness of that risk, as it relates to homes and businesses, is crucially important to minimizing or preventing massive property damage,” commented Dr. Thomas Jeffery, senior hazard scientist for CoreLogic Spatial Solutions. “Coming off a record-setting year in 2012, the 2013 wildfire season has already presented a number of damaging fires including the Black Forest Fire in Colorado and the Rim Fire in California. More importantly, the season is far from over. The next two months could be a critical time should fires continue to ravage the dry fuel areas in the west, as ongoing drought conditions in the region continue to exacerbate wildfire risk.”
According to a recent report from Lloyd’s, wildfires cost the U.S. insurance market $595m in 2012 and insurers can expect losses to increase globally. The report highlights $52.3 billion of global economic losses from wildfires since 1984, with the U.S. alone suffering $28.5 billion of economic losses from wildfires between 1980 and 2011.
Insured losses from wildfire are on the increase and becoming an increasingly large issue for insurers and reinsurers. From 2002 to 2011 wildfires accounted for $7.9bn in insured losses in the U.S. according to Lloyd’s report, an increase from the prior decade when insured losses from wildfires were estimated at $1.7bn.
On average, around 47% of wildfire economic losses were insured in wildfire disasters in the U.S. between 1980 and 2011. With $189 billion of economic exposure, that would equate to nearly $89 billion of insured exposure to wildfire in the area that the CoreLogic report looks at (the key wildfire exposed U.S. states). In California alone, wildfires have accounted for approximately $8.5 billion of insured losses since 1990.
The exposure is clear and with numbers this large being quoted it is expected that more wildfire risks will make their way into the capital markets through instruments such as catastrophe bonds and industry loss warranties in the future. With temperatures set to increase globally, according to climate forecasts, and development continuing apace in developing nations, the global amount of exposure to wildfire will increase rapidly.
Wildfire is one of those growing perils which we expect to become a bigger fixture within the insurance-linked securities, catastrophe bond and collateralized reinsurance markets. PCS recently suggested that its data could be used to create triggers for wildfire industry-loss based reinsurance contracts or instruments such as wildfire catastrophe bonds and wildfire industry-loss warranties (ILW’s). Initiatives like that will help to increase the interest in providing collateralized reinsurance capacity for wildfire risks.
Read the full report from CoreLogic here.