Growing Wildfire Risk Requires a More Granular, Nationwide Data Solution for P&C Industry
Changing weather conditions and other factors have turned wildfires into an almost "any place, any time" phenomenon -- one that has caused havoc, loss and pain for businesses, homeowners and property and casualty (P&C) insurers across the country.
According to Lamont Norman, global product manager/Insurance Risk Data, at Pitney Bowes Software, a global provider of customer data, analytics and communications management, California is the leader in terms of wildfire loss. But in the recent past, fires have caused extensive damage in Colorado, Texas (Austin), and Oklahoma.
In early March, there were 15 large wildfires active across the country, according to National Oceanic and Atmospheric Administration. Ten of the wildfires were active across eastern Oklahoma, Missouri and Arkansas. By mid-March, there were 21 large fires burning across the country, including seven across the northern plains of Nebraska, South Dakota, and Minnesota. Also at the same time, five large wildfires burned across Texas and Arizona. By the end of the month, there remained 13 large wildfires still burning nationwide.
All told, the National Interagency Fire Center reports that more than 82,000 wildfires occurred across 10 million acres in the U.S. in 2011 Also, damage from wildfires in 2011 reached the fourth-highest total in U.S. history.
"At one point, wildfires were burning continuously in the state of Texas over an 18-month time span," Norman said. "Wildfires are no longer considered a seasonal nor a regional issue. More and more, they are happening anywhere at any time."
For insurers, Norman explained, using wildfire data to create risk ratings during the underwriting process for commercial or private locations in the U.S. has been fairly manageable. But with the growth of unexpected, potentially devastating wildfires comes an added layer of complexity in the underwriting, and subsequent pricing, process.
Norman says insurers must be able to attribute accurate wildfire risk ratings during the underwriting process, and there are not too many existing methods or applications to integrate underwriting calculations for wildfire risk in much the same way you might account for flood risk to establish correct policy pricing.
"Part of the blame for the fires can be attributed to ongoing global climate change," Norman said. "But that is not the entire story. Encroachment on the wild land/urban interface is another key factor.
"No matter how you categorize it, fires are becoming more threatening and prevalent," he added.
Norman explained that until now, the science behind fire risk modeling had not been of the highest quality. In fact, he said, most models had been based on what was fueling the fires, such as the vegetation grown in a particular area. Unfortunately, for insurers and underwriters, most models appear to ignore other critical factors including fire behavior modeling, multiple fuel sources, and the aforementioned wild-land urban interface.
"Models need to take into account suppression capabilities and, more significantly, actual fire behavior science," Norman said. "But that has not been the history. That might be because wildfires were limited to specific regions and seasons, but now that has changed. Modeling today must take a much more comprehensive approach, one that considers every possible factor."
To fill that niche, Pitney BowesSoftware recently launched the first national wildfire risk software solution for the insurance sector.Called FireRisk Pro, it can work for property & casualty insurers in either the commercial or private markets.
Norman explained that their data suite supports catastrophe modeling with fire behavior science provided by Anchor Point Fire Management Consultants, in Boulder, Colo.With FireRisk Pro, the array of vegetation across the U.S., combined with weather history and key geological attributes are calculated by location to help predict wildfire risk.
"We're working with the experts at Anchor Point to change the risk modeling sophistication level," he said. "Most of that has to do with using fire behavior science."
Anchor Point includes a fire behavior analyst on staff, Norman said, a professional that is only one of 42 such expert analysts in the U.S.
"Forty of them work with FEMA. One doesn't work in insurance, and the other one is working with the Anchor Point Group," Norman said.
"Fire behavior analysts represent a rare specialty," he added. "And that depth of hard-to-find experience is brought to bear with this solution. Anchor Point has been doing this type of work for more than a decade. They go directly into communities and determine where the wildfire risk truly exists."
Bill Sinn, strategic marketing director in the insurance practice at Pitney Bowes Software, believes this new application of wildfire analysis technology will prove invaluable for insurers operating in areas where wildfires are practically a foregone conclusion.
"With Anchor Point and the solution we created, [modeling] goes deep, to a very granular level," Sinn explained. "Insurers constantly seek out better ways to create accurate pricing while looking at their entire range of risks. Our solution is more detailed in identifying those risks and allowing them to mitigate the risk during the underwriting process. That also means a better chance to lower claims costs, of course."
Sinn noted that the increased risk and resulting claim losses of today's wildfires is compounded by a large shift in population to areas that have a higher propensity for wildfires--mainly mountainous regions and areas very adjacent to forests and other wooded areas. Sinn said FireRisk Pro is available as software-as-a-service or as an on-premise solution. Insurers can use spatial data to assess wildfire risk at a particular location without the need to visualize the data with each location on a map. Policy location inputs result in fire risk rating outputs for the whole book of business, renewals and new customers.
"With this model, insurers will receive a more accurate, defined view of what those risks are," Sinn said, noting that for insurers, wildfire data has been very accessible. Yet, until now, much of that accessible data had gone unused or ignored.
"Wildfires are becoming more of a true national problem. And that was a key driver for us to innovate a more comprehensive solution for the market," Sinn said.
"For the first time, insurers have the national geospatial data for underwriting wildfire risk across the U.S.," added John O'Hara, executive vice president and president, Pitney Bowes Software. "We're excited to deliver critical fire science intelligence that will help insurers to more accurately identify, assess and mitigate risk exposure from these catastrophic events."
(The above piece is part of our continuing Perspectives series designed to highlight key products and services to our readers. This paid-for Perspective was written and edited by Risk & Insurance®
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May 25, 2012
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