According to the Associated Press, Washington State has experienced nearly 700 wildfires this year. That’s just one example of a trend that has recently been the talk of the insurance industry. Although many wildfires don’t hit the threshold for a PCS® catastrophe designation — $25 million in insured losses — the topic is certainly on the insurance industry’s radar.
Increasingly, risk bearers are considering the capital markets as a place to transfer the wildfire risk.
Insurers and reinsurers considering such risk transfer should remember that they can use PCS data in an industry loss warranty (ILW). A wildfire instrument would work like any other ILW, but instead of using the total PCS industry loss estimate, it could refer to specific data from the PCS Catastrophe Bulletin, including:
- losses from the wildland fire peril
- catastrophe dates
- states affected
- insured loss by state
- insured loss by line of business (for example, personal property)
A targeted ILW could provide a new risk transfer alternative at a time when the industry is reexamining the wildfire peril.