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Figure 1 shows the insured and overall losses for the 10-year period, 2003 through 2013. A er a near-record wildfire season in 2012, insured losses due to wildfire decreased to $385 million in 2013. In the year 2013, less than 50,000 fires were reported and 4.3 million acres burned, according to the Na onal Interagency Fire Center. This reduc on could be due, in part, to increased wildfires elimina ng the under-growth in prior years. These figures include the Yarnell Hill Fire in Arizona, which occurred in June 2013. The Yarnell Hill Fire was of major significance due to the death of 19 mem-bers of the Granite Mountain Hotshot crew. The fire burned 8,400 acres and damaged or destroyed 129 homes. While all 50 states have incurred wildfire damage at some point in the past 10 years, wildfires are most common in the Western states, where dry condi ons, strong winds and extreme heat fuels fire and increases the number of acres burned. The West has seen a drama c increase in the number and size of wildfires burning each year. Wildfires in the West are burning about six mes more acres each year, on average, than in the early 1970s, according to Climate Central’s 2012 report on western wildfire trends. The re-port also revealed there are at least seven mes as many 10,000-acres wildfires burning each year, on average, as there were 40 years ago. F F The past has seen more severe fires seasons with high num-bers of acreage burned. Opinions differ on the precise rea-

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By Jennifer Gardner, NAIC Research Analyst II I The frequency, size and intensity of wildfires have increased significantly over the years. Many of the worst years for wildfires have been in the past decade. Acres burned, one way of measuring a wildfire season’s ferocity, has only sur-passed 9 million three mes since 1960: in 2006, 2007 and 2012. A recent U.S. Department of Agriculture (USDA) re-port predicts the acreage burned by wildfires will double by 2050 to about 20 million acres annually. Many factors are involved in crea ng condi ons that are primed for severe wildfires, such as climate and weather variability. This ar -cle discusses some of these factors, as well as provides an overview of recent wildfire trends. E W R According to the Insurance Informa on Ins tute, the year 2012 was one of the costliest and most destruc ve wildfire seasons in U.S. history, with more than $1 billion in total economic losses, $595 million in insured losses and 9.3 mil-lion acres burned. Clima c condi ons were ideal for wildfire outbreak in 2012 with high temperatures, widespread drought, early snowmelt and spring growth. A er an abnor-mally warm and dry 2011/2012 winter, the first six months of 2012 were the driest since records began in 1895, fol-lowed by the ho est July since 1895, crea ng the ideal cli-mate for extreme risk of wildfire. Wildfires are cyclical and follow the weather pa erns. Heat and drought are precur-sors to wildfire, while abundant rainfall and cooler tempera-tures result in fewer fires. However, cool wet condi ons contribute to vegeta ve growth, which can later contribute to wildfires. Four historically significant wildfires occurred in 2012. The largest wildfire in New Mexico, the Whitewater-Baldy Com-plex, burned 297,845 acres in May. In June, the White Draw Fire in South Dakota burned 9,000 acres and four crew-members were killed in a C-130 air tanker crash. In early June, the High Park Fire in Colorado occurred, which de-stroyed 259 homes and burned more than 87,000 acres. Less than two weeks later, the Waldo Canyon Fire in Colora-do burned 18,947 acres and destroyed 346 homes. The Waldo Canyon Fire resulted in 6,648 insurance claims and amounted to $453.7 million in es mated losses. The total losses, including uninsured losses due to the Waldo Canyon Fire, are es mated to be around $900 million. The largest wildfire in 2012 was the Long Draw Fire, which occurred in July in Oregon and burned 557,628 acres. It was Oregon’s largest fire on record in almost 150 years.

$1,113

$620$595

$385

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Overall losses Insured losses

F 1: W L U S (2012, $ )*

* Adjusted for infla on. Source: Munich Re/NatCatSERVICE.

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sons for the recent increase; however, experts tend to agree climate and weather variability, human development near tradi onally fire-prone ecosystems, and state and fed-eral policies on fire preven on have contributed to the rise in extreme wildfires. Clima c changes are likely influencing recent wildfire trends. Wildfire seasons are star ng earlier, due to warmer spring temperatures and earlier snow melt, and they are las ng longer into the fall.1 According to Forest Service Chief Tom Tidwell in tes mony before the U.S. Senate Commi ee on Energy and Natural Resources in June 2013, the West’s fire season is now two months longer, on average, than it was in the early 1970s.2 Years with warmer spring temperatures and reduced spring snowpack tend to be the years with the most wildfires, according to Climate Central’s 2012 Report. Wildfires can also be man-made. While some wildfires oc-cur naturally without human interven on, such as those a ributable to lightning strike, wildfires are o en caused by humans either inten onally or uninten onally. These fires mostly occur during the summer months when the weather is hot, dry and windy. Unlike other catastrophes, wildfires can be circumvented by early fire suppression. Emergency response personnel can mi gate losses by ex nguishing or containing fires early. Man-made fires are o en caught ear-lier and, therefore, losses are not as high as natural fires. This is most likely due to the fact man-made fires are start-ed closer to habitable areas and are, therefore, detected much earlier.

However, this prac ce of early fire suppression robs the land of the cyclical process to clear away the undergrowth and can result in rapidly spreading fires and intense heat. In these cases, burn pa erns can be unpredictable and fires can spread rapidly. According to the Na onal Interagency Fire Center, the Las Conchas Fire in 2011 in New Mexico at one point was es mated to be burning an area the size of a football field every two seconds. The number of communi es being built in natural wildland areas, known as wildland-urban interface (WUI), could be contribu ng to rising wildfire losses. More people are mov-ing into the WUI to take advantage of the privacy, natural beauty and affordable living. Between 2000 and 2010, 10 million new homes were built in WUI areas in which resi-dences either border or are built on land prone to wildfires.3 The popula on shi has brought in new fire threats; as addi-

onal neighborhoods are built in rural areas, the poten al for incurred losses has grown. As the economy rebounds from recession, housing develop-ments are added to the landscape and home prices recover, the risk of losses due to wildfire is sure to increase. Urban

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1 Norrington, Bill. “Climate Change Is Escala ng Wildfire Risk in the U.S.” UC Santa Barbara Geography. August 2013. 2 Wildland Fire Management. Statement Thomas Tidwell Chief, USDA Forest Service Before the commi ee on Energy and Natural Resources U.S. Senate. June 4, 2013. 3 “Insurers, Government Grapple with Costs of Growth in Wildland-Urban Interface.” Insurance Journal, August 15, 2013.

F 2: T M W P S (2013) By Household By Percentage

Rank State Households at high or

extreme risk from wildfires*

Rank State Percent of households at high or extreme risk from

wildfires

1 California 1,989,100 1 Idaho 24.10% 2 Texas 1,299,800 2 Colorado 16.9 3 Colorado 373,600 3 California 14.5 4 Washington 163,400 4 New Mexico 13.6 5 Idaho 160,800 5 Texas 13 6 Oregon 159,800 6 Utah 12.8 7 Arizona 159,100 7 Oregon 9.5 8 Utah 125,500 8 Washington 5.7 9 New Mexico 122,600 9 Arizona 5.6 10 Nevada 59,100 10 Nevada 5.1 * Number of households is based on data from the 2010 U.S. Census. Source: Verisk Insurance Solu ons—Underwri ng and Verisk Climate units of Verisk Analy cs.

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sprawl contributes to the increase in homes and commer-cial structures built in the WUI. Farmland in these areas is also at risk and crop losses can be substan al. The top 10 most wildfire-prone states by insured wildfire loss and by household is portrayed in Figure 2 on the previ-ous page. According to 2010 Census data, California has the highest number of residences at risk, with approximately 2 million; this accounts for 14.5% of the total residences in California. Texas has the second-highest number of houses at high risk of damage due to wildfire, with almost 1.3 mil-lion homes, or 13% of the total residences built in 2010. Colorado is third on the list with 373,600 houses at risk, or 16.9% of all residences built in the state. Residences are not the only exposure to loss due to wildfire. Commercial prop-erty could be at risk, which means business-interrup on losses may be incurred. Private and commercial automo-biles, infrastructure and crops are also at risk of loss. W M It is important to understand the level of risk and expo-sure to losses, not only for insureds and insurers but also for local urban planners, city officials, developers, inves-tors, lenders and emergency response teams. The loca on of homes and the corresponding degree of wildfire risk should be considered before new developments are under way, and measures should be taken to mi gate risks where possible. Wildfire risk data, including local charac-teris cs—such as climac c condi ons, makeup of the ter-rain, cyclical pa ern and scrub or undergrowth available to provide fuel for fire—can be used to understand loss exposures. Risk data can be used to support be er under-wri ng, mortgage lending and other financial services. Mi ga on ini a ves have been started in many areas where risk of wildfire is high. The Community Wildfire Protec on Plan (CWPP) is a collab-ora ve plan created by fire departments, state and local forestry staff, land managers, community leaders and the public. The CWPP assesses a given community’s wildfire risk and outlines ways to reduce or mi gate that risk. One risk-mi ga on technique is land management. Land-management techniques can be put to use by foresters, land managers and homeowners to create and maintain defensible areas around homes and businesses. The Fire Adapted Communi es (FAC) Mi ga on Assessment Team was created in response to losses from the Waldo Canyon Fire. The team included representa ves from the USDA For-est Service, the Insurance Ins tute for Business & Home Safety (IBHS), the Interna onal Associa on of Fire Chiefs, the Na onal Fire Protec on Associa on (NFPA) and The

Nature Conservancy. The FAC Coali on recommends using igni on-resistant construc on techniques through codes, ordinances and development reviews on structures built near the WUI. Insurers can work with property owners and landowners in and around areas at high risk of wildfire to reduce exposures. Moreover, protec ng property from wildfire damage re-quires preventa ve ac on well before the flames start. As displayed in Figure 3, in terms of acres burned and number of fires, 2012 was not the highest in the past 10 years. How-ever, the dollar amount of insured losses, as displayed on Figure 1, is higher in recent years. As noted earlier, more homes are being built in the WUI and property values are rising. Property insurance policies typically provide protec-

on against losses due to wildfires. ISO Homeowners 3 Spe-cial Form (HO-3) provides coverage for a house and its con-tents. There are several applicable coverages under HO-3 in case of wildfire damage or even loss of use due to forced evacua on. Coverage A provides coverage for a house and its contents, as well as any structures a ached to the premises, such as a garage or deck. Coverage B covers detached structures, such as fences, sheds or barns, but excludes any structure for which rental income is collected or that is used for busi-ness purposes. Personal property is covered under Cover-age C and includes not only property on the premises but also owned and stored elsewhere. Property loaned to a

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F 3: W F S

Source: Na onal Interagency Fire Center.

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neighbor and destroyed in a fire would be covered under the neighbor’s policy. Coverage D covers loss of use, includ-ing rental and living expenses if the insured must vacate the premises due to unsafe living condi ons, as well as lost rental income for any income producing por on of the property. Coverage D also includes loss of use, even if the property is not damaged, in cases where civil authori es have prohibited the property owner from remaining in the residence. In case of loss of use due to civil authority, living expenses are covered for a maximum of two weeks. The Biggert-Waters Flood Insurance Reform Act, passed into law July 6, 2012, includes an exemp on for flooding prompted by wildfire. The law calls for changes to the Na-

onal Flood Insurance Program, including an update regard-ing exposures related to wildfire. The por on of the law related to wildfires was implemented in July 2012. Accord-ing to the Federal Emergency Management Agency (FEMA), the law created an excep on to the 30-day wai ng period for insurance coverage for private proper es affected by flooding from federal lands as a result of post-wildfire con-di ons. The excep on applies to homeowners who pur-chased flood insurance less than 30 days prior to flooding and within 60 days of the fire containment date. R C W S As wildfires have become more frequent in the West, the cost of figh ng wildfires has soared. It costs the federal gov-ernment about $1.4 billion a year to suppress wildfires, which is more than the U.S. Congress has budgeted. A re-cent report from Headwaters Economics noted federal wild-fire protec on and suppression costs averaged less than $1 billion a year in the 1990s but, since 2002, have averaged more than $3 billion annually. To make up the difference, the U.S. Department of the Interior (DOI), the USDA and the U.S. Forest Service have relied on transfers from other pro-grams to fund fire suppression. With the costs of wildfire suppression rising, Western state lawmakers have called on the federal government for addi-

onal help. President Obama recently announced plans to change the way the federal government pays to fight wild-fires. The president’s recent budget proposal asked the U.S.

Congress to pay the costs of figh ng extreme wildfires the same way it finances the federal response to other disas-ters, such as earthquakes, hurricanes and tornados. The president’s proposal includes a measure to allow the DOI and the USDSA to tap a special relief account when the costs of figh ng wildfires exceed their annual budgets. The fund-ing plan would be earmarked for the largest and most ex-pensive fires; i.e., the 1% of wildfires consuming 30% of the budget. C Wildfire-related losses have escalated in the past decade. According to the Na onal Research Council’s Board on At-mospheric Sciences and Climate’s 2010 report, large and long-dura on forest fires have increased fourfold over the past 30 years in the West. Several reasons have been noted for the increase in fire frequency and severity. The increas-ing number of homes and businesses built in the WUI, in addi on to an increase in property values, will con nue to exacerbate the issue. Mi ga on techniques have been iden-fied and implemented in many areas. The cost of these

techniques, as well as their effec veness in diminishing risk, will con nue to be monitored so total losses can be reduced in the future.

A A

Jennifer Gardner is a research analyst with the NAIC. Jennifer joined the organi-za on in 2011. She conducts economic and sta s cal research for the NAIC and its members. She is responsible for pub-lishing sta s cal and market share re-ports, provides support for numerous

NAIC working groups and assists the state insurance depart-ments in data collec on related to catastrophe. Jennifer earned a bachelor’s degree in business administra on with an emphasis in finance from the University of Missouri-Kansas City. Prior to joining the NAIC Research and Actuarial Depart-ment, Jennifer worked on the State Based Systems (SBS) prod-ucts and services within the NAIC.

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© Copyright 2014 Na onal Associa on of Insurance Commissioners, all rights reserved. The Na onal Associa on of Insurance Commissioners (NAIC) is the U.S. standard-se ng and regulatory support organiza on created and gov-erned by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best prac ces, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collec ve views of state regulators domes cally and interna onally. NAIC members, together with the central re-sources of the NAIC, form the na onal system of state-based insurance regula on in the U.S. For more informa on, visit www.naic.org. The views expressed in this publica on do not necessarily represent the views of NAIC, its officers or members. All informa on contained in this document is obtained from sources believed by the NAIC to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such informa on is provided “as is” without warranty of any kind. NO WARRANTY IS MADE, EXPRESS OR IM-PLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY OPINION OR INFORMATION GIVEN OR MADE IN THIS PUBLICATION. This publica on is provided solely to subscribers and then solely in connec on with and in furtherance of the regulatory purposes and objec ves of the NAIC and state insurance regula on. Data or informa on discussed or shown may be confiden al and or proprietary. Further distribu on of this publica on by the recipient to anyone is strictly prohibited. Anyone desiring to become a subscriber should contact the Center for Insur-ance Policy and Research Department directly.

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