By DAN REYNOLDS, senior editor of Risk & Insurance®
Risk managers in wildfire-prone areas please take note. The La Nina event creating cooler-than-normal temperatures in the Northeast of the United States is creating arid conditions and a heightened risk of wildfires in parts of the South and Southwest, according to a national wildfire-monitoring group.
Texas in particular is at risk, with much of the state vulnerable to above-average fire risk from March through May, according to the February report from the National Interagency Fire Center in Boise, Idaho. Southern California, a perennial leader in insured wildfire losses, according to insurers, is also expected to be subject to above-normal fire risk, according to the governmental agency.
The region from Florida through southeast Georgia and northward along the coast to North Carolina will also remain at above-normal wildfire risk from March through May, according to the agency analysts, although the "green-up effect" that occurs in spring and summer when deciduous trees sprout their leaves has a tendency to lower wildfire risk.
Alaska led all states with 2.95 million acres burned by wildfires in 2009, according to the New York-based Insurance Information Institute. Texas led the nation by a sizable margin in numbers of fires, with 16,614 reported in 2009. California came in second in that category with 9,159 fires.
But the densely populated and commercialized Golden State has no equal when it comes to the insured losses of wildfires. According to the III, the costliest U.S. wildfire of all time was the Oakland Hills fire of Oct. 20 to 21, 1991, in which there was approximately $2.49 billion in insured losses. The San Diego Witch and Rice fires on Oct. 21 to 24, 2007, resulted in $1.34 billion in losses.
Although much of the losses in California wildfires are residential, commercial and public sector risk managers and insurers sweat when dry conditions such as the ones created by this La Nina are afoot. That's because property damage is one thing, but determining and paying for the liability for that damage is quite another.
When conditions are bone dry, like they were in the case of the Oakland Hills fire of 1992 or in the case of the Witch fire of 2007, it doesn't take much to get a conflagration started as any arsonist will tell you.
In the case of the Witch and Rice fires in 2007, the San Diego Gas & Electric Co. was held liable for not trimming a sycamore limb that fell onto its equipment during a windstorm and for not maintaining conductors that issued sparks during high winds.
The $740 million the utility paid to insurers sparked an insurance crisis for Southern California utilities, and utility companies petitioned for a rate increase. In its June, 2009 renewals, for example, San Diego Gas & Electric saw its insurance capacity shrink from $1.2 billion to $399 million.
Environmental harm is another liability that can now be connected to the most casual of commercial mistakes in a dry season.
In October 2009, a jury ordered two contractors to pay a total of $36.43 million for environmental harm caused to the Los Angeles National Forest when sparks from an electric grinder at a construction site were found to have ignited a fire that consumed 18,000 acres.
February 28, 2011
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