News
30% rise in frequency of large US wildfires since 2000s
The average number of major US wildfires (over 40,000 acres) per year has risen 30% over the last 15 years from an average of 32.4 a year to 41 a year now, shows a study by Chaucer, the leading specialty (re)insurance group.
Between 2006-2010, there were 157 fires over 40,000 acres. Between 2011-15 the total rose to 173, with an average of 34.6 per year. Finally, between 2016-2020 there was a total of 205 wildfires of 40,000 acres, an average of 41 a year (see graph below)
As well as increasing in frequency, wildfires are causing more financial losses and pose a bigger risk to property as humans extend building into the Wildland Urban Interface. These are areas that were previously wilderness but have since been built upon and the land developed for human activity.
Chaucer says the risk of wildfire damage is increasing in part due to higher temperatures and shifting rainfall pattern causing more drought conditions, which is linked to the effects of climate change. A pattern of dryer Springs and Autumns may have extended the duration of the wildfire season. Forest density has also increased, providing more fuel for the fires.
The increased risks posed by wildfires, in addition to the rising value of claims has put upward pressure on insurance premiums. With 38 US states at risk of wildfires, this year’s season, which has already hit Arizona, California, Oregon, Utah, New Mexico and even Hawaii, is expected to be one of the most destructive on record. A heat dome gripped British Columbia, Canada in June 2021, with 500 wildfires burning across the province by July 1st.
As the shift of wildfires from being a secondary risk to being an area of primary focus is relatively recent, the science and modelling of this risk is much less mature when compared to some other perils, such as hurricanes. The methodologies and the assumptions used to forecast the probabilities and severities of wildfires still vary substantially – leading to quite different prices for insuring this risk.
Chaucer says wildfires are also more complex to model than the more conventional perils, such as hurricanes, due to numerous variables at play that can affect the size and intensity of the wildfire – e.g. how wind direction affects the travel of embers.
Ellen Gyandzhuntseva, Head of Exposure Management at Chaucer says “Calculating the risk of wildfires is of key importance to the industry. The complexity of the peril is particularly challenging given how many shifting factors there are to consider.”
“We’ve undertaken a thorough review of our own internal modelling practices for wildfires and put together a framework for determining our own view of risk and managing our risk appetite for this peril.”
“The respective approaches to modelling wildfire risk vary across the industry, leading to different views of what technical rates should be charged to insure this peril. With the severity and frequency of wildfires increasing together with social alertness to their risk mitigation, the challenge for insurers is to get comfortable that their models are suitably updated to reflect this trend in order to avoid being caught out by the peril.
“The consensus is that this threat is only going to continue to grow.”