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Perspective

Wildfire Probabilities Aren’t What They Used to Be – But What Are They?

November 13, 2018| By Ira Kaplan | Property | English

Region: North America

*The following article was originally published in the October 2018 edition of The Bulletin for the PCI Annual Meeting. The events in California of the past weeks have highlighted the importance of careful thought around this issue.

Having just emerged from the most destructive wildfire in U.S. history, insurers might be thinking that they have earned a breather. Though an extraordinary year, 2017 fires might be viewed as a “1 in 50” year event by many scientists and risk modelers, or even a “1 in 20."

Many probability estimates are based on historical experience over many decades, but what if the underlying conditions are changing and rendering past experience less relevant? If they are, then this extraordinary wildfire year might actually be closer to the new ordinary year for our industry. That has implications for ratemaking and insurer profitability.

While the number of wildfires has been fairly consistent since the 1980s, the same is not true of wildfire size. Starting in the late 1980s and accelerating in recent years, wildfires consumed more acreage than in preceding decades. While there are variations in annual experience, the overall trend is clear.

We examined the 20 largest California wildfires and found a similar pattern among them. In the 74 years before 2006, eight large fires (burning over 125,000 acres) occurred, or roughly one every nine years. However, the last 12 years tell a different story: On average, those megafires occurred annually, compared to a frequency of 20/86 or 0.23 per year for the entire 1932–2017 span.

What is behind the dramatic shifts in fire size? Changes in firefighting practices and environmental conditions go a long way toward explaining the trends. In the late 1980s, the U.S. Forest Service scaled back its policy of prescribed or controlled burns to clear dead brush and trees that feed megafires. A warming climate, droughts and land development patterns have added more fuel to the fire.  

Throughout this summer of 2018, wildfires were blazing in most western states. Not long ago several prairie and southeastern states were in the fire news. Thinking of 2017 as a “1 in 20” event may seem extreme; thinking of it as a “1 in 5” is almost too frightening to accept. No one knows the right answer, but we believe that long-term historical answers are unlikely to be the right ones.