According to the Insurance Information Institute (Triple-I), the potential insured losses resulting from US wildfires are growing even as their frequency decreases because close to 99 million Americans reside in the wildland urban interface (WUI).
The WUI is the zone of transition between unoccupied and developed land, where structures and human activity intermingle with wildland and vegetative fuels.
It is said that more than 46 million homes with an estimated cumulative value of $1.3 trillion are situated within the WUI, the U.S. Fire Administration reported in 2022.
Moreover, in a report published in March 2023, and cited in Triple-I’s Issues Brief, the Swiss Re Institute said, “another longer-term trend is the doubling of the share of natural catastrophe insured losses from wildfires over the last 30 years.”
“Insured losses are influenced by the extent of development in the wildland urban interface,” commented Dale Porfilio, chief insurance officer, Triple-I.
“Developers, homebuyers, lenders, and other stakeholders must seek to understand and respond appropriately to the relationship between a property’s WUI proximity and its risks.”
Another key factor to note, is that the correlation between wildfire risk and geography underscores the importance of data gathering and scrupulous analysis when insurers underwrite and price their auto, business, and homeowners policies.
“Even within states that are heavily exposed to wildfire risk, potentially profitable insurance opportunities exist. The use of sophisticated modeling tools is critical to sound, accurate underwriting,” Porfilio added.
Looking back, the August 2023 wildfires that struck Hawaii were among the deadliest recorded in US history. However, this year the nation remains on track to have its fewest number of wildfires dating back to 2014.
Triple-I also highlighted how the total number of US wildfires has generally been on a downward trajectory over the past decade except for the years 2017 and 2018. The latter years were when the nation’s three costliest wildfires, as defined by insured losses, occurred in California.
But, since that time, both state and local authorities have invested heavily to mitigate the human causes of wildfires, the Triple-I’s Issue Brief notes.
Lastly, the private sector has also played a significant role in reducing wildfire risks. A key example that Triple-I highlights is how the Insurance Institute for Business & Home Safety (IBHS), which is financially supported by insurers and provides science-based wildfire research, launched its Wildfire Prepared Home designation program in 2022 to help California homeowners protect their property.
