Wildfire Risk Analysis provides multi-angle view on a rising threat

By Dr. Arindam Samanta, John Britt, Dr. Jeff Amthor

October 24, 2023 / 4 min read

Wildfires continued to be costly for many insurers, resulting in billions of dollars in losses, and possibly growing.

According to data from the National Interagency Fire Center, in 2022 there were roughly 69,000 fires. Texas had the most fires total, at 12,600, while California followed with 7,880 events. Nationwide fires burned more than 7.5 million acres, with activity varying from state to state. New Mexico was towards the top of the list, with 860,000 acres burned. Texas followed at 671,800 and Oregon with 456,100. Fires burned 309,000 acres in California.

Wildfire Risk Report-Visualize article

Rising temperatures, extreme droughts, and altered precipitation patterns extend wildfire “seasons” to virtually year-round. One study found that spring in the Northern Hemisphere arrives an average of ten days earlier than it did in the 1950s.

New Wildfire Risk Reports from Verisk demonstrate updated views of wildfire risk across 13 western states: AZ, CA, CO, ID, MT, NV, NM, OK, OR, TX, UT, WA, and WY

Wildfire exposure by county

Using FireLine^®, a wildfire risk assessment tool, Verisk estimates around 7% of properties are at high to extreme risk for wildfires across the 13 states. Nearly 3.3 million U.S. properties are at high to extreme risk for wildfire, with over 1.7 million of these addresses in California.

States with the highest risk concentration include Montana and Idaho at 12% and 11%, respectively. California, a key state for regulatory reform, has nearly 8% of properties at high to extreme risk. Only 22% of properties across the 13 states are at low to moderate risk.

The Verisk Wildfire model for the U.S. explicitly accounts for fire branding/spotting, the primary mode of fire spread into the wildland-urban interface (WUI) and through urban areas.

Various WUI types exist. An intermix WUI is where development, such as structures, is interspersed or scattered throughout wildland vegetation. This type of WUI is often found in rural, exurban, or large-lot suburban developments. An interface WUI is where development is grouped near areas with wildland fuels and there is a clear line of separation between development and vegetation, which may appear as an abrupt edge between a highly urbanized or suburban neighborhood and a wildland area.

The percentage of structures in the WUI are estimated by leveraging Verisk’s Industry Exposure Database and data from the U.S. Geological Survey. Looking across the 13 coverage states, Verisk estimates that 23% of structures are located in the Intermix, and 33% of structures are located in the interface.

wildfire chart

Caption: Wildfire exposure preview from the California Wildfire Risk Report.

Factoring in complementary views of risk

Continued development within high-risk areas—WUI and intermix WUI areas—creates a high potential for increasing loss exposure. Using permit data, Verisk is able to identify counties with increasing, decreasing, or stabilizing new construction activity.

Additionally, at the property and community levels, efforts to reduce risk through property maintenance and vegetation management can make a given property less susceptible to loss or damage from wildfire. This concept is also known as mitigation.

While California is currently at the center of regulatory efforts around property insurance and wildfire— bringing mitigation into wildfire rating—activity is drawing close attention from other states with heavy wildfire exposure, such as Oregon and Colorado.

Verisk has been working with the National Fire Protection Association (NFPA^®), leveraging robust data from its Firewise USA^® recognition program, which analyzes thousands of communities across various states engaging in wildfire mitigation efforts. More than 95% of communities recognized as Firewise USA maintain their active status over multiple years.

What happens after – a focus on claims and reconstruction

As natural catastrophes become more frequent, severe, and widespread, granular property data and reliable reconstruction cost estimates (RCEs) can help keep policyholders appropriately protected and supported in a time of loss.

Using 360Value^®, average reconstruction costs for residential and commercial structures across the 13 states increased 4% and 6%, respectively, from September 2022 to September 2023. Lengthening build times creates additional pressures as inflation increases over the course of construction.

A full picture of wildfire risk

Looking at construction, exposure, and mitigation data together can help paint a more comprehensive picture of risk.

For example, in California, Nevada county has 73% of structures at high to extreme risk. However, it is also one of the top counties with the most communities participating in Firewise USA program.

Whereas Tuolumne county in California has 83% of structures at high to extreme risk, with the county seeing new construction permit activity increase 66% from 2021 to 2022.