2022 Wildfire Risk Retrospective: 3 Key Lessons for P&C Insurers
A year after the Marshall Fire devastated suburban Colorado in the dead of winter, P&C insurers continue to grapple with the new realities of wildfire risk.
The blaze, followed by an ominous staccato of wildfires this past spring, had communities in Colorado, California, and throughout the American West bracing for calamity. Modeling from many of the legacy providers of property risk data predicted an apocalyptic wildfire season ahead.
But their models were wrong—and what began with a bang ended in a long sigh of relief. According to the New York Times, wildfire burned roughly 362,000 acres in California during the 2022 wildfire season—far less than the 2.5 million acres charred in 2021 and the 4.3 million acres incinerated in 2020.
“It’s really just that we got lucky,” Lenya Quinn-Davidson, a fire advisor for the University of California, tells the Times. Instead of the state somehow becoming less vulnerable, it was only well-timed precipitation and favorable wind conditions that spared the state from another scorching year of wildfires. But even as the season unfolded with welcome, if unexpected, calm, it offered three critical insights for property underwriters.
#1: The Answer Isn’t Just More Data—It’s the Right Kind
In response to the rising threat from wildfire, many property insurers started adding wildfire exclusions and increasing premiums. Others exited entire lines in regions or states with exceptionally high vulnerability to wildfire risk. In California, as many as 200,000 homeowners policies were dropped in 2022, with more expected to come.
Given the prognostications from conventional risk data providers this past year, it’s understandable. But it’s also true that today’s fastest-growing markets are also those most prone to wildfire. Expansion-oriented insurers understand this—and have begun augmenting internal and conventional external data sources with continuously updated intelligence that reflects the evolving impact of climate change and data from new catastrophic events.
It’s no small feat. Modeling wildfire risk is extremely data-intensive and must account for a wide variety of risk profiles within even the same neighborhood. For this reason, a growing number of insurers are gravitating to higher-end analytics providers that combine modern machine learning with high-resolution geospatial imagery to provide granular, up-to-date risk scores at the individual property level via API.
Today’s most robust offerings go beyond non-predictive data elements like slope and aspect to factor specific risk factors like vegetation clearance and roof construction and material. Proximity to fuel load is also crucial since embers sent aloft can travel as far as 8,000 feet, endangering nearby homes.
Instead of bypassing whole neighborhoods or abandoning entire markets, insurers armed with this level of predictive insight can safely write more business by pricing wildfire risk accurately while surgically avoiding bad bets.
#2: ‘Wildfire Season’ Is Always-On
The Marshall Fire was a sign of things to come. Fueled by 110-mile-per-hour winds, last winter’s inferno decimated 1,000 homes and businesses across 6,000 acres, even as forecasted snowfall threatened to freeze water pipes.
The fact is, persistent drought conditions and the compounding effects of climate change have put 50 million homes in booming wildland-urban interfaces at year-round risk of wildfire. Five of the largest wildfires in California history have all occurred since 2018. More than 40,000 homes in California have been destroyed by wildfires in the past five years. And after averaging $600 million per year for most of the past two decades, insured wildfire losses in the US reached $176 billion over just the past two years. And it’s getting worse. 
Amid record-breaking heat, deadly fires raged across 35 European countries this past summer, resulting in a 75% increase in land damage compared to 2021. When even Siberia is now routinely wracked by wildfires, all bets are off.
According to February’s landmark UN report, the risk of catastrophic wildfires is expected to increase 14% by 2030—and as much as 30% by 2050—propelled by climate change.
As the planet warms, carbon emissions from fossil fuels continue to dry out forests everywhere, making them more prone to burn while extending wildfire seasons and creating a deadly feedback loop: Wildfires worsened by climate change that, in turn, worsen climate change.
As The Nation puts it, “Firefighters in California used to don fire-resistant Nomex shirts in May or June, knowing they could shed them by mid-October. Now, there’s barely a pause before things heat up again and those shirts go right back on.” Bottom line: You shouldn’t just be concerned about the next big wildfire season. It’s a year-round concern.
#3: It’s Not Just About Identifying Risk, It’s About Mitigating It
In 2022, rewarding policyholders for taking steps to protect their properties from the ravages of wildfire became more than just a great idea. In California, it became law.
Regulations put in place in October under the state’s new Safer from Wildfires framework require insurers to provide discounts to homeowners and businesses undertaking substantive wildfire mitigation efforts. These can include installing a fire-resistant roof, clearing vegetation, or deploying IoT sensors that detect wildfires at the smoldering stage and automatically alert firefighters. For insurers, it’s well worth the effort. A recent industry study found that simply clearing vegetation within 10 feet of a home can reduce the threat of wildfire damage by as much as 30%.
The regulations are the first of their kind in the US. But they could herald a wave of similar mandates elsewhere. Insurers leveraging geospatial property analytics will have a distinct advantage—especially over those requiring on-site inspections. Regularly updated data from top providers can be used to instantly verify and discount mitigation measures—achieving regulatory compliance while enhancing the customer experience.
They can also aid efforts in Phoenix, Miami, and other cities that have appointed chief heat officers to proactively track wildfire prevention efforts. In 2022, initiatives like the expansive fire mitigation and resiliency efforts in Spain gained international attention and could inspire similar initiatives here and worldwide.
Uncomfortable Conversations to Come
According to Capgemini, only 35% of insurers have adopted technologies to deal with the dynamics that shaped this past year. As the threat posed by wildfire continues to grow, those that do will enjoy a competitive edge. And those behind the curve may want to speed up.
Given the availability of vast amounts of geospatial data and the analytical firepower to turn it into actionable intelligence, the industry will increasingly become part of a much larger, more heated conversation. As Capgemini suggests, the question will eventually move from how best to help individuals and communities rebuild properties destroyed by wildfire to if and where to do so.
Looking back at the Marshall Fire that rang in 2022 and the unexpected lull that followed, one thing seems clear. What became our year of living a little less dangerously was good while it lasted. Now it’s time to heed the lessons it offered along the way.
To learn more about wildfire risk in insurance underwriting, read A New Approach to Wildfire Risk Analytics for the Insurance Industry from CAPE Analytics.