Wildfire: Insurers and communities adapt to an ever-growing threat

May 30, 2023 / 3 min read

Wildfires have moved rapidly to the fore as an exposure for insurers to understand and manage in states at high risk for this peril. Increasing temperatures, severe droughts, and changing precipitation patterns contribute to near-year-round wildfire “seasons.” The increasingly early arrival of spring accelerates snowmelt, ultimately letting vegetation dry out faster before the heat of summer.

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Verisk analysis shows that new construction grew 242% over five years in Riverside County, California’s fourth-ranked county by number of housing units at high to extreme wildfire risk.

Meanwhile, development is steadily encroaching on high-risk acreage—wildland-urban interface (WUI) and intermix WUI areas—and increasing potential loss exposure. For example, Verisk analysis shows that new construction grew 242% over five years in Riverside County, California’s fourth-ranked county by number of housing units at high to extreme wildfire risk.

A new white paper discusses this peril in depth as part of a Verisk's natural hazard series, Ice, Fire, Wind, and Water.

A costly peril grows more frequent

Wildfires are a persistent source of costly claims for many insurers. The 2022 wildfire was busier than 2021 by number of fires and acres burned, according to data from the National Interagency Fire Center. More than 61,000 fires burned nearly 7.2 million acres in 2022, compared with 59,000 wildfires in 2021, a year marked by drought, intense lightning activity, and extreme heat.

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New Mexico saw two of the largest wildfires in the United States in 2022. The Calf Canyon/Hermits Peak and Black Fires each exceeded 325,000 acres burned, according to data from FireLine^®, Verisk’s wildfire risk assessment tool. And the Marshall Fire in Boulder, Colorado, showed the damage a wildfire can do in a dense urban area.

Managing wildfire risk at the multiple levels

While behavior of active wildfires can be hard to predict, the underlying risk is more measurable through quantifiable factors such as those used by FireLine. These can then be correlated to measure individual property risk. Using the factors of vegetative fuel, terrain, road access, wind patterns, Special Hazard zones, and mitigation measures, FireLine classified roughly 99 percent of the acres burned in recent years as at risk from wildfire. Overall, FireLine, classifies more than 4.5 million U.S. properties at high to extreme risk for wildfire, including more than 2 million California addresses.

At the portfolio level, Verisk’s Extreme Event Solutions specialists continue to study how wildfire risk is changing and what it means for insurers and reinsurers. An enhanced U.S. wildfire model is being adjusted to the dynamic environment surrounding wildfire, including the effects of climate change.

A new regulatory environment in California

California presents a special case for insurers, with greater consideration for mitigation efforts built into new regulations on rating of property coverage in wildfire-prone areas. The wildfire regulatory activity is drawing close attention from other states, such as Oregon and Colorado. Verisk provides tailored wildfire risk and mitigation solutions to support carriers with their regulatory compliance needs.

Examples of mitigation are establishing defensible space, which minimizes combustible vegetation and other potential fuels close to structures, and structure hardening, which includes fortifying roofs, using fire-resistant exterior materials, installing multi-paned and safety glass windows, and sealing gaps.

Mitigation also extends to the community level, where Verisk cultivates relationships with multiple entities involved in such efforts, including the National Fire Protection Association, California’s Board of Forestry and Fire Protection, and the International Association of Fire Chiefs.