Underwriting wildfire risk requires a more strategic P&C approach...

by Jen Smoldt on July 9, 2019

underwriting wildfire risk

Following back-to-back years of tragic wildfires, some California residents and business owners may face another crisis—getting adequate and affordable wildfire coverage. Surplus line carriers and the FAIR Plan, for homeowners who can’t get mainstream insurance, are seeing notable spikes in policies. According to the Surplus Line Association of California, in the first three months of this year 19,389 policies with $52.6 million in premiums were sold—up 93 percent and 143 percent respectively over the same period last year. In counties at "very high risk" of wildfires, the FAIR Plan is running 300 percent ahead of last year according to Tammy Schwartz, its vice president for underwriting and operations.

So what does it all mean? Either non-renewals are increasing or Californians are seeking alternative forms of coverageor a combination of both. As an insurer, agent, or broker, how do you rise to the challenge of helping Californians rebuild and safeguard their homes and businesses, while also protecting your own interests? Here are a few considerations...

Megafires are the trend

When will California wildfires cease to be historic on an annual basis? According to research by Gen Re, the severity of wildfire events is likely to continue. Their research reveals that it’s not so much the frequency of events (with the number of wildfires being fairly consistent since the 1980s), but rather, the size of the event, with “megafires” an emerging trend:

“Thinking of 2017 and 2018 as ‘1 in 20’ events may seem extreme; thinking of them as ‘1 in 5’ is almost too frightening to accept. No one knows the right answer, but we believe that long-term historical answers are unlikely to be the right ones.” -Ira Kaplan, Gen Re

An increasingly volatile recipe of climate change and urbanization means that history is no longer representative of the future. As insurers renew or expand their portfolios, they will need to take more factors into considerationfactors beyond a wildfire scorefor a more informed and comprehensive view of risk. 

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Gaining a more comprehensive view of risk

In 2017, the Breckenridge, Colorado, property shown below was denied coverage by a well-known insurer, most likely due to the fact that there had been a nearby fire in the area (dubbed the “Peak 2” fire). On the surface, it’s understandable why an insurer would decline coverage. After all, an event had just occurred and the structure is sandwiched between national forests with an abundance of downed beetle-kill trees in a high-altitude desert (at 10,000 feet with likely 0 percent fuel moisture)...I mean come on. But, on the other hand, could taking more factors into consideration be cause for re-evaluation?  

4 Barney Ford Drive Breckenridge

Aerial view of 4 Barney Ford Dr., Breckenridge, CO. In 2017, this property was denied coverage by a well-respected insurer.

Considerations such as:

  • proximity to the nearest fire hydrant is less than 100 feet from the garage

  • proximity to the nearest fire station is approximately 1-2 miles

  • the building itself is surrounded by roads on 3 sides

  • satellite imagery shows evidence of active tree clearing and mitigation efforts surrounding the structure

Data from wildfire modeler and data provider, RedZone, digs deeper and tells a more complete story about why this seemingly high-risk property actually scores low for wildfire risk (see image below), including hazard layers that show risk from smoke, floating embers, as well as frequency and severity. Adding more data points to the equation, along with contextual information gleaned from geospatial analytics, enables insurers to adequately assess and price for the risk—or, in this case, opportunity—at hand.  

4 Barney Ford latest

Using SpatialKey’s underwriting solution, along with data from RedZone and HazardHub, provides insurers with a more complete view of why this seemingly high-risk mountain property actually scores low for wildfire risk, despite a nearby 2017 fire.

Reconsidering incumbent wildfire models and data 

Sustained winds caused 2017’s California wildfires to strengthen and spread (similar to last year's California fires exacerbated by Santa Ana winds), yet some incumbent models didn’t account for smoke and wind-driven embers. Wildfire data provider, RedZone, is breaking the old-school approach to modeling wildfire by going beyond direct flame impingement to assess the risk of ember showers and smoke damage, as well as frequency, severity, and history factors that contribute to greater scoring reliability and accuracy. Additionally, HazardHub data (also seen in the screenshot above), provides distance to fire station and distance to hydrant information. Layering RedZone and HazardHub data together, within a geospatial analytics solution that contextualizes the surrounding landscape, can provide insurers with a more comprehensive understanding of a location’s wildfire risk.

Bottom line: wildfire risk is evolving. But so are the solutions to fight this growing hazard. So if you’re approaching a new world of wildfire risk the same-old-way, the solutions are here now to help you gain a more informed and strategic underwriting approach.  

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Topics: wildfire risk, wildfire data, California Wildfires

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