Underwriter Chaucer has warned that the rapid acceleration of climate change has created risks which have left catastrophe models out of step with the current and future threats.
The comments came as the underwriter published its North American Wildfire report which warned severe weather pattern changes are rapidly rising playing a key role in increasing North American wildfire risk in areas that were previously ‘low risk’.
It identified four regions – the Appalachians, Southern Rocky States, Alberta and British Columbia, and Texas – as quickly becoming areas of concern for catastrophic wildfire insurance losses.
The report found that these regions are more at risk now of experiencing longer droughts, more severe heatwaves and delays in cooler autumn and winter temperatures. Their climates share some similarities with the U.S. West Coast, which has been susceptible to devastating wildfires in recent years.
“Research suggests that the number of wildfire days is likely to increase significantly,” it stated. “The extent of this increase depends on carbon dioxide emissions in the coming years.
“Currently there are 36 wildfire days a year. Even under an intermediate emissions scenario, the most likely scenario currently projected, the number of wildfire days would increase by 61% to 58 days. Under a high emissions scenario, this would almost double, to 71 days.”
Chaucer’s report added many catastrophe models may not be up to the task of modelling structural characteristics accurately. For example, when it comes to property risk, certain aspects of a building are critical to determine how likely it is to catch fire during an event such as, if the “defensible space” perimeter around the property is clear of vegetation or not, or information on wooden fencing and deck coverings which can allow the fire an easy path up to the house. While many models are quite sophisticated, even deploying AI to build smarter hazard components, there is a widening gap between model capability and the quality of wildfire specific exposure data. This is partly why some carriers have been reluctant to underwrite the peril.
Dana Foley, head of catastrophe research at Chaucer explained: “An increase in severe weather is directly causing key wildfire risk factors to increase, which has dramatically heightened the risk of catastrophic wildfire damage in areas that were previously not of major concern for insurers.”
“This relatively rapid acceleration of risk means that many catastrophe models are out of step with the increasing risk and can’t accurately gauge the scope of potential damage. This is most prevalent at the individual risk level and how models incorporate building characteristics into estimating vulnerability.”
Dana Foley qualifies this by saying that “despite these short comings, even simple modelled approaches are preferred to relying on historical loss data alone. Most regions outside of California and the West Coast have not experienced any catastrophic wildfire loss. The best way to deal with this problem is to use probabilistic approaches anchored in the best available science and data, and that is what catastrophe models were designed to do.”
“Wildfires, particularly North American wildfires, are a key risk for our industry. For reasons ranging from urban development patterns to climate change, the danger they pose is growing,” added the report. “While many wildfire catastrophe models exist, they are relatively immature to other peril models and are not widely used by either the insurance or reinsurance markets.
“Given the risk is growing and confidence in the modelling has not matured, partly due to current regulatory restrictions, we need to better understand trends in wildfires and what these mean from both an industry and a view of risk perspective.”