Wildfire in the US and Canada

Philipp Wassenberg: Yes, also due to climate change while adding that the recent fires in Canada were caused by hot and dry weather possibly influenced by El Niño. Deteriorating health of forests, fiscal constraints that may limit the funds available to fight wildfires, and growth into the wildland-urban interface are some other factors that appear to be increasing the risk. The area burned by wildfire is expected to increase significantly, with a growing probability that fire may burn out of control, forcing evacuations and destroying property.

Mark Bove: Wildfire risk is absolutely increasing in North America. As Philipp said, some of the increase in fire risk comes from socioeconomic factors, like the continued development of residential communities along the wildland-urban interface and the increasing value or both real and personal property in these areas. The other drivers for the increased wildfire risk are environmental. Climate Change is causing California and the American southwest to be warmer and drier, leading to an expansion of fire season in the region. Furthermore, the increased heat stress has weakened the resistance of trees to insect infestation. Bark beetles have killed millions of trees across the west, leaving behind ample fuel for future fires.

Philipp Wassenberg: For Canada I can say that wildfires need to become an integral part of underwriters’ catastrophe considerations. Both the frequency and severity of wildfires must become a top peril within the pricing of cat programmes, and should play an even more important role in assessing risk accumulation. In the light of recent events in Canada – Kelowna, Slave Lake and now Fort McMurray – it has to become one of the prime accumulation considerations for underwriters in Canada.

Mark Bove: Due to the unique circumstances of the Fort McMurray fire, such as its very remote location and importance to the Canadian petrochemical industry, it is difficult to apply lessons from that particular event to the United States. Regardless, there are many general guidelines to properly underwrite wildfire exposed business. What is the geographic location of the risk? What is the land cover and topography around the risk? Is the risk easy to access with fire trucks or other firefighting equipment? Is the risk constructed of non-combustible materials? Are the yard and roof kept clear of vegetative debris? How many other risks do you have within a given distance of this one? These are just a subset of the key questions underwriters should ask when dealing with wildfire risk.

Philipp Wassenberg: Despite the fact that we know which general regions are prone to wildfires, they are not easy to model. The likelihood and extent of fire damage is influenced by the extent of winter snowfall and summer rainfall, as periods of extended drought increase the frequency of wildfires. The key factor is understanding where the risks of accumulation and aggregation of PMLs correlate with where the boreal forest could ignite in terms of a reduced snow pack. This is something Munich Re has done. We were aware of the dangerous situation in 2016 because of the reduced snow pack. We were not aware that Fort McMurray in particular was at risk, but all the cities in the boreal forest are at risk in times of unusually hot and dry climate.

Mark Bove: The difficulties in developing a wildfire model are many. For example, models need to consider both natural and manmade sources of wildfires. They need to consider the weather conditions at the time of an event, and how that causes the fire to spread. They need to consider the fact that embers lofted by the fire are often the vector by which homes burn, sometimes miles away from the main conflagration. They need to consider how easy or difficult it will be to fight the fire. There is a very limited amount of claims data from which vulnerability curves can be developed, particularly outside of California. And from a financial standpoint, a model needs to reflect the occurrence clauses typically used in both primary insurance and reinsurance contracts.

Philipp Wassenberg: While insurance companies do not set building codes, experience with fire and wildfire losses has given the industry specific knowledge about preventing losses and enhancing resiliency. In Canada, the Institute for Catastrophic Loss Reduction (ICLR) has presented mitigation measures for wildfire risks after the Slave Lake disaster 2011. If all those recommendations were implemented, significant losses could be prevented in the future.

Mark Bove: In the US, the Insurance Institute for Business & Home Safety (IBHS), a non-profit organization sponsored by the insurance industry, is performing wildfire vulnerability tests on full-scale residential buildings at their research facility in South Carolina. That research will hopefully influence the development of building codes in wildfire-prone areas. The experiments will also inform their FORTIFIED Home Program, which provides instructions how to build resilient homes and businesses for a number of natural perils, including wildfire. Recently, the IBHS, in conjunction with Munich Re, developed an app for tablets that allows any homeowner to easily see how to build a new FORTFIED home or how to retrofit a home to protect against natural perils. Furthermore, a community that follows FORTIFIED guidelines for wildfire becomes significantly more resilient. Thus, getting this information in the hands of homeowners, contractors, and local government officials is critical, as it can save lives, homes, and entire communities from the devastation of a major event. This interview was first published in "Reactions" on September 13 in 2016.