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California Wildfires October 2019

What Is The Concern For The Insurance Industry?
Like clockwork, it’s wildfire season again in California, and it appears to have the insurance industry on edge for good reason. The last two years have been extremely destructive, with insured losses reaching over $30B and, according to Milliman, wiping out about twice the combined underwriting profits for homeowners insurance for the past 26 years. Applications like Zillow make it easy to understand exposures within fire parameters, and some of the properties’ high insured values are likely eye-opening, undoubtedly worrying the insurance industry.

BMS iVison shows the USGS GeoMac Current Fire Perimeter and can show in-force risks. Other free tools like Zillow allow for cross-reference to understand risk.

However, I want to first say that, so far, the fires of the last month have caused nowhere near the level of destruction to the industry that was experienced in 2017 and 2018. Headlines like the one below are simply causing unnecessary panic. There is a huge difference between the number of structures exposed versus structures that burn.

Overall statistics from the last two California wildfire seasons suggest this year is not even in the same ballpark in terms of loss and structures destroyed.

In fact, of the current wildfires reported by CAL FIRE, only 242 structures have been destroyed, as compared to the thousands that occurred in 2017 and 2018. I guarantee that this number will climb as the assessment continues. A large fire that wipes out thousands of homes could, of course, still occur this season. But, in my opinion, the industry needs to take a deep breath and trust that the last week has been a buildup to something less extreme at the start of November. Unfortunately, the true end to the fire season is a long time from now, and I don’t see any rain in the forecast for at least the next 10 days. Lastly, we can’t underestimate the amazing work that firefighting crews are doing to try and contain these fires before any more serious damage occurs. For example, the Misty Fire near Oroville, CA was quickly attended to yesterday with air and ground support minutes after it started. These efforts limit insured loss.


New Normal of Forced Power Outages
Although the insured loss level has been relatively low, there are many issues for the insurance industry to consider. The power outages have been massive. In fact, PowerOutage.US confirmed that this is likely the largest forced outage in U.S. history, with close to 3 million people without power at one point. At a time when we are more dependent on electricity than ever – ATMs can’t operate, restaurants are closed and businesses try to limp along on backup generators – there is no doubt that these unprecedented outages are causing huge economic losses. I have seen reports that the economic costs are anywhere from $400M up to $3B, with the caveat that economic losses are complex to understand. Another important aspect of determining insurance loss is that California policies may include a “Loss of Use” provision, which would cover for hotel stays during evacuations. How many insureds are utilizing such coverage is unknown at this time, however. Regardless, this might mean an uptick in such coverage going forward. There is clearly business interruption that could also lead to increased losses.


The power outages could also cause an even greater insured loss because they complicate evacuation. Without lights to find the things they need, along with street lights and stoplights to guide them out of the evacuation zone, evacuees are helplessly gathering their belongings by flashlight and trying to leave via streets that are at a higher risk for accidents due to no traffic lights. One accident can often shutter some of the only exits out of these towns, creating the potential for an even larger loss of life from fast-moving wildfires. First responders are also challenged by the power outages.


Another issue with a lack of power is increased crime. Without video cameras or street lights to hinder criminal activity, the opportunity for insured losses due to crime is escalated. Further, a lack of power can lead to loss if towns can’t pump water. Clearly, this creates problems when trying to fight fires, but it also causes dangerous situations for businesses and residents not having access to water. Evacuation plans and supplies are critical to businesses and residents in locations that have a high earthquake likelihood in addition to wildfire potential.


Is No Trash Pick-Up Next?
Much of the focus has been on the problems endured by utility companies, but other industries are facing huge liability risks as well. A few weeks ago in southern California, a garbage truck caught fire and the driver dumped the burning trash on the side of the road (protocol to do so to save the truck). Minutes later, powerful winds blew the flames across a hillside and into a mobile home community, killing two people and destroying dozens of homes. This is another example of unforeseen risk that may be addressed by limiting trash pick-up during extreme conditions.


Evacuation Fatigue
The vast majority of evacuees will not be affected by the fires and can return to their homes without consequence. Taking a lesson from hurricane evacuation as we mark the seventh anniversary of Hurricane Sandy 2012, however, is that evacuation fatigue is real. During Sandy, many people didn’t leave because, in the prior year during Hurricane Irene 2011, calls for evacuation were ordered, but the storm weakened with limited impact to the Northeast. Some of the evacuees chose not to leave the next year only to find them themselves suffering from the impact of Sandy. I am sure evacuation fatigue is already setting in for many California residents, and unfortunately, this could cause more problems in the future as people wait longer to leave, causing major traffic jams. The fallout could be deadly.


Season Is Not Done Yet
In summary, even though it currently appears that the insured loss will be limited, the overall risk will remain high until, hopefully, a weather system around the middle of November will bring some much-needed precipitation to the west coast of the U.S. The early December fires of 2017 that totaled over $2.5B in insured losses serve as a reminder that the California wildfire season is not yet close to being done. With any luck, however, the recent events will have been the peak of the season’s activity. The insurance industry and California residents are on edge, and the forced power outages could get worse – even with massive outages, two of the major fires were caused by utility lines that were not de-energized. These outages are having large economic impacts and, to some degree, will be felt by the insurance industry going forward. On a positive note, however, they could also provide an opportunity for the development of new products to help mitigate the loss of power without physical loss to a structure.

2013 Half Year Review – U.S. Extreme Weather Events

Andy Siffert, BMS’ resident Meteorologist, reviews the first 6 months of 2013 in terms of U.S. extreme weather events and their impact on the industry.

As we round the corner into the second half of 2013 we can now put into perspective some of the U.S. extreme weather events that occurred during the first half of the year. With the tally of some of these disasters still being assessed, the U.S. insurance losses estimated by Property Claims Services (PCS) will continue to rise. As of July 1, 2013 the U.S. has seen $6.8 billion in PCS claimed losses from weather events across the U.S. Considering the expected upward adjustment of claimed weather events, losses reported thus far would fall below the five-year average for first- and second-quarter weather-related losses, which total $13.1 billion. This below-average loss is primarily connected to the current “Tornado Drought” that has been ongoing since the second half of 2012. Severe convective storm outbreaks in May 2013 produced major tornadoes causing widespread damage to properties in Texas, Oklahoma, and other states. But as of July 1, the tornado count is 42% below the five-year average, with a major portion of the tornado activity occurring in the lower Mississippi and Tennessee River valleys. Given that May is peak tornado season in the Central Plains, it should be no surprise that strong and violent tornadoes formed and caused damage there. In Tornado Alley this typically occurs during the second quarter of the year, but the number of tornadic weather events in the Central Plains and Midwest regions has been below normal again this year.

The overall lower PCS loss numbers could also be a result of fewer hail events, which, according to Storm Prediction Center (SPC) storm report data, are currently 21% below normal (with only 3,714 hail reports). With the main drivers of severe convective storm losses resulting from the May 20 tornado in Moore, OK and overall hail reports below the five-year normal trend, it seems that derecho or straight-line wind events are the likely driver of most U.S. weather-related losses to-date. These events appear to be trending with the five-year SPC severe wind reports, which as of July 1 stand at 7,360 vs the five-year mid-year average of 7,369 severe wind reports.

The Black Forest wildfire in Colorado appears to be one of the most destructive fires in Colorado’s history. Because of this, wildfires have been getting a lot of media attention lately and it might be interesting to put the current wildfire season into perspective.

According to the National Interagency Fire Center, the U.S. is about a million acres below the 10-year running mean of 2.4 million acres burned in the 22,050 wildfires that have been reported. This is also 15,000 fires fewer than the 10-year running mean. In fact, in 2013 there have been fewer fires than in any of the last 10 years, and the year stands next to last in terms of acres burned.

Like the tornado season, so far the fire season has been well below normal. The Black Forest wildfire in Colorado and the recent deaths of 19 fire fighters in the Yarnell Hill, Arizona wildfire are examples of fires that stick out like a sore thumb in a below-normal wildfire season – just like the two late-May tornadoes which were exceptions to the trend of the overall tornado season.

It is my understanding that in both the Black Forest and Yarnell wildfires, areas burned that had not burned in the previous 40 years – which has to be a major factor contributing to the wildfire catastrophe. The media would say the fires are due to dry conditions, which definitely exist and in some cases are extreme. But if it had been a wet spring, then more fuel would have been available as the summers always see drier conditions in the southwest. The old saying, “Pay me now or pay me later” applies here: If it’s wet, the resulting new growth will eventually dry out and die. And if it’s dry and dead, it will eventually burn.

Worldwide, recent catastrophes seem to be focused largely on flooding-related events, with the notable events originating from the remnants of Tropical Cyclone Oswald that triggered severe flooding in Queensland and New South Wales in Australia. More recently, flood losses that impacted a large area along the Elbe river basin in Europe will likely surpass the 2002 European flood losses. In North America, heavy rainfall provoked catastrophic flooding in southern Alberta, Canada – which will likely go down as the largest flood-related loss ever experienced in Canada. However, with the 7th-latest start to the typhoon season, few typhoons have resulted in flooding or the kind of disasters typically seen in Asia. In fact, global Accumulated Cyclone Energy (ACE) is still stuck in the lowest range – which began in 2007 and is similar to the 1980s. Before Super Typhoon Soulik was upgraded on July 10 to a major 96+ knots tropical cyclone, the last major tropical cyclone, Sandra hit just east of Australia on March 11. And the clock is still ticking on the 2,811 days since the U.S. was last hit by a Cat3+ hurricane – the longest such period since 1900, if not before.

Overall it would appear there is a silver lining – because extreme weather events could be worse based on past years, plus you can’t control nature. Most often, catastrophic events like the wildfires, tornadoes and floods of 2013 can be tied to events of similar magnitude that occurred in the past. We are building bigger towns in locations where catastrophic events have occurred in the past, and the understanding of changes in population, income and housing units can often explain the increase in loss.