How wildfire became a peak peril

A combination of changing land use and a warming climate are exacerbating wildfire risk, resulting in increased claims frequency and severity

The wildfire that destroyed 10% of the Alberta city of Fort McMurray is set to be the costliest ever Canadian natural catastrophe for insurers as well as the costliest wildfire loss ever. Industry insured loss estimates are expected to reach C$4.6 billion ($3.52 billion) according to the Property Claim Services (PCS) business unit of Verisk Analytics.

This compares to $2.7 billion (in 2015 dollars) for the costliest US wildfire in history (the 1991 Oakland Hills Fire in California) and AUD$1.8 billion ($1.4 billion in 2011 dollars) for Australia’s most devastating and costliest wildfire, the 1983 Ash Wednesday Bushfires.

Around the world the risk of wildfires is increasing, and with it, increased losses from such events. Some of the worst hit regions include the southwest U.S. and southeast Australia, but exposure has been steadily rising in south-west Canada, parts of the Mediterranean basin, western South America and eastern Siberia as well.

In populated areas, wildfires pose a major risk to lives and infrastructure, particularly in parts of the world where population density is growing at the fringe of urban and rural areas. In other parts of the world, such as Mediterranean Europe, the depopulation and abandonment of traditional agriculture has resulted in a building up of dry, fireprone vegetation. A changing climate, with a trend toward drier conditions, inevitably favors the spread of wildfires.

“Increases in exposure at risk in areas where structures meet or intermingle with undeveloped land on the edges of urban zones have increased the potential for catastrophic wildfire losses,” explains Kevin Van Leer, RMS Senior Product Manager. “This, along with the impacts of a potentially longer fire season due to climate change, have laid the foundation of a new normal for wildfire risk.”

Van Leer is currently helping to develop a new wildfire model. “Fort McMurray was a wake-up call showing that wildfire losses, driven by these increased risk factors, can be at the same level as catastrophe losses from other well-known perils, such as hurricane.

In Australia, climate change is resulting in longer bushfire seasons and growing exposure in states that were previously relatively immune, explains Graham Peters, Executive General Adjuster, Crawford Forensic Accounting Services, Australia. “Bushfires are common in Australia and we get them every summer to varying degrees,” he says. “A large number of mainland cities and a huge number of rural towns are exposed. Even here, I’m 20km from the Central Business District of Melbourne and in extreme conditions I could be in a bushfire zone.”

“About the only state of Australia which historically hasn’t had a major problem is Queensland and the city of Brisbane, which is a lot further north and wetter,” he continues. “But the changing climate means the number of drying days in Queensland is increasing.”

Whereas previously it was extremely uncommon to see bushfires before mid to late November, with February the month most likely to see major bushfire losses, in 2015 there were bushfires during the first few days of October. The 2015-2016 Australian bushfire season was one of the most destructive in terms of property loss since the deadly 2009 fires in Victoria. A longer, more severe season had been predicted, given the strengthening El Niño over the Pacific Ocean and warmer sea surface temperatures in the Indian Ocean.

However, El Niño was just one factor amongst a trend towards longer fire seasons, with fire weather extending into October and March, according to the Climate Council of Australia. It has warned that the country’s firefighting resources will come under increasing strain as climate change causes the northern and southern hemisphere bushfire seasons to overlap.

“A lot of Australian firefighting resources depend on the use of equipment such as aerial tankers and things like that,” explains Peters. “Historically the Australian fire season has been out of sync with the U.S. fire season, but with the prolongation of the U.S. fire season and our fire season we’re getting an overlap and so there are scarce resources out of the U.S. Helitankers, skycranes and the like are still being used in the US when we’d like them in Australia.”

Following the 2009 “Black Saturday” bushfires in which 173 people lost their lives and over 3,500 properties were destroyed in an area greater than 450,000 hectares, there has also been a number of class action lawsuits. This suggests an increasingly litigious environment post disaster, thinks Peters. “There is increasing emphasis to try and lay the blame against some party.”

Following Black Saturday there was also shift in attitude towards the human risk posed by wildfires. Whereas previously, it was recommended that homeowners stay and do their best to protect their properties (the Stayor-Go policy), now, there is a strong emphasis on evacuating early.

In California, the most wildfire prone state in the U.S., strong, extremely dry downslope winds, known as Santa Ana winds, are infamous for causing the rapid spread of wildfires. A prolonged drought in Southern California and continued development on hillsides and canyon areas have also exacerbated the risk. Last year’s El Niño was expected to bring some relief, however, 81%
of the state remains in drought conditions with 43% in extreme or exceptional drought, according to the US Drought Monitor.

“The El Nino did not pack anywhere near the punch they were expecting,” says Rick Younger, AVP and Managing Director, US Property & Casualty (California and Hawaii) at Crawford. “This added more fuel to the dry vegetation from the prior season and lent itself to Southern California, Colorado, Arizona and Mexico becoming a tinder box for fires.”

From January to October 2015 there were 51,023 wildfires across the US, burning a total of three million hectares. This set a new record, according to the National Interagency Fire Center. As many as 90% of fires result from human activity, either deliberately as a result of arson or accidentally through the burning of debris or discarded cigarettes.  As the drought continues, fire prevention and mitigation has risen up the agenda.

Homeowners in “red zones” are being asked to cut down trees, bushes and shrubs within 100 feet of their homes. “Insurers are providing this type of preventative spray that goes on houses and roof tops – especially in areas in the hills and foothills,” explains Younger. “Communities in certain areas and fire departments are also setting controlled fires to clear the brush as the drought continues.”

One of the problems, however, is the continued development of homes in canyons and hillside areas. “If nothing changes this is going to become an every year thing,” says Younger. “They can’t clear all the brush and if there’s going to be a continuous drought, then the more fuel in terms of arid vegetation there is going to be for these fires.”

He thinks an increase in loss frequency and severity is changing the way insurers view wildfire risk. “A lot of carriers have been tightening their underwriting protocols. You’ve got to go to a certain carrier if you’re on a hillside or in a high brush area, or an area that has had wildfires in the past. It’s going to be difficult to get a traditional carrier to cover that. If more of the severe claims continue to happen I can see more insurance carriers pulling out and more specialty carriers coming in to write that kind of policy.”

Fort McMurray in Numbers

27,000   Residential Property Claims
CA$82,000 Value

$3.8bn   Total Loss Estimate

88,000   People Evacuated

5,000     Commercial Property Claims
CA$268,000 Value

0 Fatalities

12,000    Motor Claims
CA$12,000 Value


November 2016