The summer of 2013 has been another severe fire season for the United States, a trend that has insurance companies bracing for a new normal: higher rates of property damage as Americans move to wildfire-prone areas in ever greater numbers.
The deaths of 19 firefighters in Arizona’s Yarnell Hill fire in June, the biggest such loss since 1933, shocked the nation and was the most visible evidence to date of a general trend of rising threats to lives as well as property.
The insurance industry has seen a dramatic upward trend in fire-related property losses in recent decades, according to data from the Insurance Information Institute.
Wildfires in the United States accounted for $13.7 billion in total economic losses and $7.9 billion in insured losses from 2002 through 2011. That is a spike from the prior decade, which saw $6.8 billion in economic losses and $1.7 billion in insured losses.
Federal government spending has also sharply risen as firefighters must dedicate more time to wildfire suppression.
Numerous factors are involved, including longer fire seasons tied by some to climate change, logging and diminished fire prevention funds that have allowed the build-up of flammable fuel, turning some communities into fire-season tinderboxes.
The biggest culprit though, according to many experts, is the rapid increase in development in areas where wilderness meets human development.
As the population has increased, so has the appeal of living in areas away from cities.
“It’s definitely something we’ve been seeing more and more in recent years as cities get congested,” said Nicole Farr, a spokeswoman for the Arizona Insurance Council, a group that represents the state’s insurance industry.
Between 2000 and 2010, 10 million new homes were built in wildland-urban interface (WUI) areas in which residences either border or are built on land prone to wildfires.
Those homes in WUI areas accounted for two-thirds of all homes built in the United States during that time, according to research jointly conducted by the U.S. Forest Service, University of Wisconsin and Oregon State University.
Nationwide, more than 47 million homes, or 36 percent, reside in the WUI, which is 10 percent of the country’s area, the research showed.
Some insurance companies are striking back with stricter rules for obtaining homeowner’s insurance, which often includes wildfire damage, for those living in high-risk areas.
“More and more, these communities that are in these fire-prone areas are growing,” Farr said. “That is creating these more costly wildfires because people are living in these areas.”
The most common goal of the new rules is to incentivize or require homeowners to create “defensible spaces,” an area around the house cleared of debris and overhanging branches that could contribute to fire spreading to a house.
State Farm, the largest home insurer in the country, has started reassessing high-risk properties in specific western states as they come up for policy renewal and making recommendations for defensible spaces. In some cases, according to the company, fewer than 1 percent of people decline to modify their property and discontinue their insurance policy.
“Most people take great pride in their property,” said State Farm spokeswoman Angela Thorpe. “They’re interested in mitigating their fire risk.”
Farr said the Arizona insurance industry has always been conscious of wildfire risk. She could not say how policies may have changed recently but areas deemed to be higher risk were likely to see higher rates.
Carole Walker, executive director of the Rocky Mountain Insurance Information Association, said people in some areas of Colorado might be left high and dry.
“If people are moving into a class-10 (high-risk area)… they’re basically in no man’s land,” Walker said. “It may be difficult for you to find insurance.”
PRESSURE TO PROTECT PROPERTY
The development of wildfire-prone areas is also driving up government spending on fire containment, according to a paper from Headwaters Economics, a Bozeman, Montana, research group that focuses on land management decisions in the western United States.
The research, published in June, highlighted a 1995 policy change by the U.S. Departments of Agriculture and the Interior that made protecting private property and natural resources equal in priority after the protection of human life.
“The political reality is that protecting people’s homes is given priority over protecting lands and resources … (and) structures adjacent to federal lands can significantly alter fire control strategies and raise costs,” the group said.
In the 1990s, average federal spending on wildfire suppression was less than $1 billion per year, according to Headwaters Economics. That has ballooned to more than $3 billion since 2002 and does not account for state spending, estimated at another $1 billion to $2 billion a year.
Chris Mehl, a policy director with Headwaters Economics, said reforming the 1995 policy on private property could be one way to reduce WUI growth, by conveying to property owners that once residents in the path of a wildfire are evacuated, their property might not be protected.
Questions remain for insurance agencies about the best way to reform wildfire coverage. So far, losses to wildfires have been far eclipsed by losses from other natural disasters, but that’s a cold comfort for companies that see increases in risk.
Mehl said insurers are currently grappling with the question of whether damages from wildfires could eventually rival those of other natural disasters, and how effectively they can mitigate potential losses.
“They’ve made some big strides, but it remains to be seen how consistently they can apply these policies,” he said.
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