A combination of changing land use and a warming climate are exacerbating wildfire risk, resulting in increased claims frequency and severity
After the “Beast”
Pat Van Bakel, President and CEO of Crawford & Company®, Canada explains why the devastating wildfires in Fort McMurray in May 2016 were a game changer from a hazard and industry loss perspective
The Fort McMurray fire was the largest event in the history of Canada by a factor of two. The jury is still out on the final number but it looks like it is going to be somewhere between C$3.6 billion and C$4.7 billion and at least double the previous two largest losses in Canada: the Calgary floods in 2013 and the Quebec ice storm in 1998.
The factors that really contributed to the severity of the event were environmental, otherwise known as the 30-30-30 rule, which involves temperature, humidity and wind speed. When these three factors are all around 30, it’s a perfect recipe for wildfire events, and that’s what we had with Fort McMurray… all the factors were playing against us.
We have wildfires in Canada every single year but rarely do they threaten communities the way they have threatened Fort McMurray this year. The fire was ultimately labeled the “beast” due to its ability to thwart efforts to control and direct it.
The result of that was the fire burned for 65 days which is significant in and of itself. The work to control and fight the fire was an enormous effort, hampered by strong winds and dry conditions. It is the first time in Canada where we have had a total evacuation of a population. All 88,000 residents were evacuated for 30 days.
That creates a challenge because you have nobody left on the ground to give you an insight into what is happening there. Very quickly following the evacuation we received requests from our clients for drone footage so we could get a better sense of what we were dealing with. There was a lot of fear mongering, speculation and misinformation about the entire city being consumed or destroyed by fire.
But if everyone who wanted to put a drone up in the air following an event was allowed to it would be chaos in the skies, particularly during the fire-fighting efforts and water bombing of the town. Eventually, working with the government, we were able to share some aerial imaging with our clients so you could see the areas that were totally destroyed (around 10% of the town) versus those that were partially affected. So that imagery was extremely useful to share with our clients.
There were also losses post event. Buildings in Fort McMurray were sitting unoccupied for a month while fire fighters were water bombing and throwing on chemicals… and of course there were
the smoke and heat exposures. When the town was getting ready to repopulate and they started turning the power back on, a few houses actually blew up.
A challenge from a loss adjusting process perspective was the difficulty of identifying smoke versus dust versus ash. Being located where it is, Fort McMurray is a typically dusty community. The remoteness of the location was another factor. Fort McMurray only has a small single airport servicing the area. If that airport had been lost – and there was some threat that it would have been – then the challenge would have been even more profound.
The insurance companies tend to want to set up command centers around the evacuation zone, so it was important for Crawford to have people on the ground able to support and deal
with that. At the same time we were deploying many of our adjusters into our clients’ claims departments in other parts of the country to assist with claims triaging and cash advances.
Restoration of the town is going to take some time. Fort McMurray is a community set up for the oil and gas industry and at its peak they were building about 600 new homes a year.
Around 1,800 to 1,900 homes were completely destroyed by the fire, so even if they got back to their previous production capability, it would be three-plus years to rebuild. And inevitably
there are going to be issues surrounding the availability of materials and labor.
One of the issues the insurance industry is going to have to grapple with going forward is what does the new normal look like following Fort McMurray? Ten percent of the town was destroyed by fire and that is likely to be a C$4 billion event. So what would the insured loss have been if 25%, 50% or worst case 100% of the town had been lost? What would the impact on our industry have been? As we look back at this event it is likely to change the way the industry thinks about solvency requirements for this kind of risk.