Grim California Wildfire Outlook has insurers that shell out big bucks for modeling
Severe drought and scorching temperatures aren’t the only proof Californians should be worried about wildfires this year.
Clear evidence that there are many reasons to be concerned is that those who will have to pay for the losses caused by fires are increasingly spending considerable sums of money on better modeling of fires in order to try to reduce losses.
Last year, California saw 4.2 million acres burned, approximately 10,000 structures destroyed or damaged, and 31 deaths. Economic losses from wildfires in 2020 were around $ 19 billion, according to Aon’s 2021 Weather, Climate and Disaster Report, which shows five western fires each caused more than $ 1 billion. of dollars in losses.
Insurers reacted in several ways. Getting smarter is one way.
Sales of two fire models increased significantly for CoreLogic, a data and analytics provider based in Irvine, Calif.
And it’s not just more insurers buying the models. Reinsurers are increasingly purchasing CoreLogic forest fire models, according to the company.
Sales of their Forest Fire Risk Score and the U.S. Forest Fire Model have increased significantly, according to Shelley Yerkes, product manager for CoreLogic’s Forest Fire Models.
Insurance rates charged have not been commensurate with growing risk, so losses suffered by insurers in recent years have penetrated the ranks of reinsurance, forcing reinsurers to respond, Yerkes explained.
“Huge losses have penetrated deep into the insurance layers,” she said. “And now reinsurers are finding they are paying a lot in this extra coverage. They need pricing tools.
California regulators this week approved a plan by Farmers Insurance to assess wildfire risk using a tool that combines artificial intelligence with high-resolution aerial photography. The carrier said the Z-Fire risk scoring model developed by Zesty.ai is expected to make standard coverage available to an additional 30,000 homeowners.
Modeling is expensive, so that’s saying something that insurers are reinforcing in this area. Depending on the size of an insurer’s book, Yerkes said the cost for CoreLogic models could run into the millions of dollars over several years of licensing.
The CoreLogic Forest Fire Risk Score is a deterministic forest fire model that assesses a property’s risk by returning a score of 5 to 100. The model takes into account such things as slope, vegetation / fuel and proximity to higher risk areas. The CoreLogic US Wildfire probabilistic model combines agents of damage, including sources of ignition, spread, and suppression, with structural vulnerability. Damage from burns and smoke is taken into account, and the model takes into account weather conditions. After the damage ratios are calculated, the model applies the insurance conditions to determine the financial losses.
In addition to working to better model their risk, insurers have also started to withdraw and underwrite less in areas prone to forest fires.
Homeowners in high-risk areas of California find it difficult to obtain home insurance outside of the California FAIR plan. The number of California home insurance policies that insurers refused to renew rose 31% to 235,250 in 2019, from 179,458 in 2018, as the number of policies issued under the FAIR plan increased. from 140,138 to 190,196, according to a report by the California Department of Insurance.
California Insurance Commissioner Ricardo Lara in May called on state property insurers to step up efforts and do more to help residents and businesses deal with wildfires.
The excess line market also took over where the admitted market left off.
According to the Surplus Line Association of California, premiums for excess lines in 2020 in California rose 22.7%, while the number of items from excess lines increased by 8%, with wildfires driving the cause. of some of these increases.
A recent report from the group shows that the average premium per trade transaction for May, the latest data available, fell from $ 9,000 over the same period in 2018 to $ 27,000. The average premium per owner / residential transaction fell from $ 2,500 in 2018 to $ 7,500 in May.
“Both markets have hardened considerably and the trend lines indicate further hardening through 2022,” the report said.
The pressure is unlikely to be removed from rates anytime soon.
The fire forecast for the western United States is poor. More than 25% of the region is subject to “exceptional drought” conditions, the most severe category used by the US Drought Monitor.
And record temperatures are being recorded by several states in the region. A National Weather Service advisory published earlier this week warned of the personal dangers of heat: “Very high heat risk. Increase in heat-related illnesses, including heat cramps, heat exhaustion and heat stroke. Heat stroke can lead to death.
California’s fire season, which historically began around September, starts earlier and lasts longer each year.
“What we have noticed is that our wildfire seasons have lasted an average of an additional 75 days, so they start earlier and last longer,” said Lynnette Round, chief information officer at CalFire.
Round said fuel moisture levels this year are already dropping to a level that is not typically seen until the end of July.
“Our fuel humidities have dried up a bit,” she said. “It just increases the chances of wildfires breaking out and moving quickly.”
The state has already foreseen the worst. Gov. Gavin Newsom ramped up $ 536 million for wildfire preparedness through Senate Bill 85 in April, including $ 25 million in funds to help household building projects.
This gave the state 1,400 additional full-time firefighters, which Round says have already been recruited and trained.
This help is welcome, but Yerkes doesn’t have much hope for Mother Nature’s help.
“In California we have a really big deficit right now and that will continue for the rest of the year,” Yerkes said. “We are looking at a potentially very big fire season. “
Drought alone doesn’t start fires – you always need a kindling.
Lightning was responsible for many fires on the West Coast last year, but most fires tend to be human-caused – around 80% of fires are man-made, data shows.
As people return to normal activities after the pandemic is over, Yerkes urges caution.
“With things getting back to normal you can expect people to go back to doing what they always did before the pandemic and I would expect 80% of human-caused inflammation to be likely. She said.
Carriers California Disaster Natural disasters Trends Forest fire