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Wildfire — We Must Reduce Risk

Posted By Administration, Tuesday, November 12, 2019

California has been on fire for a decade. So has much of the West. Each year the number of fires and destruction grows. Some blame global warming and the drought that follows. Others say it’s allowing people to live in that very dangerous no-man’s land called the urban-wilderness boundary.

Experts on land use planning say it’s where people ought not be living.

While the reason or reasons are important, it is more important to find ways to prevent the destruction from those fires. This report focuses mostly on California but many of the states in the West — Oregon, Washington, Idaho, Montana, Arizona, Nevada, Utah, New Mexico and Colorado — have experienced increasing wildfires, too.

The Insurance Information Institute (I.I.I.) is the latest organization to go to work on solutions to that destruction. I.I.I. CEO Sean Kevelighan said the institute is looking at this from an insurance perspective and is calling on insurers to help find ways to reduce our collective exposure to risk.

By the way, he agrees with the experts who say we’re building in the wrong places. However, since we’re already there, we need to find ways to protect ourselves.

“While our research has been in the works for the last year because of California’s catastrophic wildfires in 2017 and 2018, the wildfires we’ve seen in recent weeks makes these findings all too real and timely,” he said. “The increased severity of these wildfires stems in part from too many people residing in harm’s way. Builders and residents need to focus on how to be more resilient, or reconsider altogether whether to place homes in certain areas.”

Kevelighan worries about insurance exposure and pointed to last year’s Camp Fire in California. It killed 85 people in Paradise and caused — once all the claims are paid — between $8.5 billion and $10.5 billion in insured losses from residential, commercial property and auto claims.

The I.I.I. recently did a white paper on the subject titled Fighting Wildfires with Innovation. It explores a number of ways to prevent fire.

“Building codes that incorporate fire-resilient construction, such as fire-resistive roofs, can help protect new housing stock from wildfire damage,” the white paper notes. "For example, an analysis found that 51 percent of houses in Paradise, California built with the state’s updated 2008 building codes survived the 2018 Camp Fire; in contrast, only 18 percent of houses without the updated building codes survived.”

Kevelighan says insurers need to more involved in the solution. The industry must encourage customers to put Class-A roofs on their homes. That roof is highly fire-resistant and is just one of many things people can do to slow down the spread of fire and protect their property and — in turn — the property of others.

Those efforts include metal screens to cover all vents, and the use and installation of double, or multi-paned tempered glass windows.

“Creating what’s called a defensible space around a structure can significantly reduce the risk of embers and surface fires spreading and igniting the structure,” the I.I.I. white paper concludes.

Then there are regulations. Kevelighan and the I.I.I. — via the white paper — address the problems faced by insurers with regulators. Looking at California, Kevelighan said the department of insurance keeps insurers from using the cost of reinsurance and catastrophe models to set rates.

“Instead, insurers are often required to rely only on their own historical loss data to set prices, regardless of what the anticipated future risk might be,” the white paper notes. “This could result in underpricing of wildfire risks in some areas, since there might be as yet little historical loss data for catastrophic losses — even in high-risk areas. Some have argued that the cumulative effect of these and other regulations may be creating an unsustainable financial environment for insurers that seek to offer property insurance in high-risk areas, since they cannot accurately price risk.”

In the future the I.I.I. is going to publish more white papers on the subject. We’ll keep you in the loop.

Source link: Insurance Information Institute

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