Fired up Over Business Continuity in a Top Five Wildfire State

The wildfires are burning bright in the heart of Texas, but insured losses, particularly commercial ones, remain low. Perhaps emergency preparedness has something to do with it?

By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

The catastrophe of the day is tornado. Not to take away from the personal suffering and financial loss inflicted upon Southerners in the last few days by massive twisters, but this article is about a smoldering disaster still occurring in Texas: wildfires. Perhaps they've lost the focus of the nation because twisters are cinematically more dramatic. Perhaps because property damage from the wildfires has been minimal. Or perhaps because authorities and businesses have handled the fires so well as to make them less of an issue.

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The official figure for insured property loss coming out of the Texas wildfires from the Insurance Council of Texas is $150 million. The cost of the response to the fires by the Lone Star State is estimated at $70 million. The largest of the 10 major blazes still burning as of April 29 was the Rockhouse fire in Presidio and Jeff Davis counties, which affected nearly 300,000 acres, according to the Texas Forest Service. About 66 percent contained, the Rockhouse fire razed 23 homes and two commercial buildings. In total, news stories report as many as 2 million acres were scorched by the blazes to date.

Do the math and that's a fairly modest ratio of property losses per square mile of scorched earth, said Tom Larsen, senior vice president and product architect at catastrophe modeler Eqecat Inc.

It gives a picture for what sort of wilderness is being impacted. Texas, Larsen said, is unlike California, where people encroach with their homes in wild areas and where you can go from undeveloped land right to a subdivision.

So it shouldn't be a surprise that Texas was the No. 1 state for wildfires last year, per numbers from the Insurance Information Institute, with 6,748 fires, California was a close second with 6,663, and yet California has eight of the 10 most costly wildfires in history. The Oakland Fire of October 1991 was the costliest at $1.7 billion in insured losses. The rest of the top five states for wildfires last year were Georgia (4,243), North Carolina (4,203) and New Jersey (3,616).

TEXAS LOSSES

Half of that $150 million insured loss most likely is coming from direct and total damage to homes, Larsen estimated. Most of the rest could result from partial damage to structures.

Businesses in the area could also suffer business interruption or contingent business interruption from, for instance, civil authorities closing down roads or whole regions, said Russ Opferkuch, managing director with Aon Risk Solutions' Property Risk Consulting. Many commercial losses from wildfires also tend to come from smoke damage, he said.

"There's tremendous amount of smoke here," Larsen agreed.

Many of the areas affected in Texas are agricultural, so additional insured losses--for say, farm equipment--could emerge.

Insured losses could easily double once adjusters unearth all of the exposures affected by the fires, said Larsen.

"There always is the discovery process," he said about wildfire claims.

One thing that could limit losses, particularly business interruption hits for businesses, is proper preparation and planning. Though not speaking in particular about Texas policyholders, Opferkuch at Aon has seen an uptick in clients being more aware of their exposure to catastrophes and putting business continuity planning in place to better recover.

Of course, with Mother Nature dropping the hammer on us with a new disaster seemingly every other day, it'd be amazing if businesses were not steeling themselves.

April 29, 2011

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