Wildfires drive California maintenance higherBy Jonathan Kanarek, Dr. Arindam Samanta | December 5, 2019
Major wildfires have made their way through California for the third consecutive year, spurred by historic and at times hurricane-force winds along with severe drought conditions. With rebuilding efforts still underway in recently impacted communities, it’s not yet clear how the repercussions of damage to California properties will affect the insurance industry.
At the one-year anniversary of the Camp Fire—the deadliest and most destructive wildfire in California’s recorded history—we took a deeper look into construction activity across the state and shifts in housing activity after recent wildfires.
Rebuilding continues after the Camp and Woolsey Fires
Housing activity in California has experienced a steady year-over-year decline in 2019 across both new and existing construction, according to a recent analysis by BuildFax™, a leading provider of property condition and history, which was recently acquired by Verisk™. This is due, in part, to rising housing prices and growing affordability concerns. However, this is not the case in areas affected by the 2018 Camp and Woolsey Fires. Properties in Butte, Ventura, and Los Angeles Counties, which experienced the lion’s share of damage, are still in recovery.
Relative to the region, growth of new construction was 94.3 percentage points higher in Camp Fire–impacted Butte County than in California as a whole. This analysis is derived from building research conducted by BuildFax pre- and post-wildfire. Maintenance activity in Butte County compared to that of California was also higher, growing 35.6 percentage points more.
Meanwhile, in Southern California, the California Department of Forestry and Fire Protection (CAL FIRE) reported the Woolsey Fire destroyed 1,643 structures. BuildFax research found that new construction and maintenance activity grew respectively by 13.5 and 14.8 percentage points more than in the state overall.
Kincade and Tick wildfires pose high risk for structures in the region
Unless wildfire frequency and severity slow over the next few years, California property insurers will have to contend with the increased likelihood of wildfires occurring and how that may affect their books of business.
According to estimates using FireLine®, Verisk’s wildfire risk management tool, about 87 percent of the properties in the area of the Kincade Fire, 82 percent of properties in the area of the Getty Fire, and 72 percent of properties in the area around the Tick Fire were at risk from direct exposure, while all properties in these fire areas were exposed to peripheral effects such as smoke and ash damage. As of November 6, CAL FIRE reported that approximately 483 residential and commercial structures were ultimately damaged or destroyed by the Kincaid and Tick wildfires. The Los Angeles Fire Department reported that another 25 structures were either damaged or destroyed in the Getty wildfire.
Address wildfire peril at the property level
Through Verisk’s analysis, nearly 4.5 million U.S. households were identified at high or extreme risk of wildfire, with more than 2 million households in California alone, based on housing unit figures derived from the latest information on address locations and existing U.S. Census information. It’s impossible to predict wildfires, but location-specific environmental characteristics play a significant role in determining the level of exposure to wildfire hazard.
With deeper understanding of the variables affecting the likelihood and severity of wildfires, it’s possible for insurers to underwrite and manage wildfire exposure with greater context. Knowing how the various risk attributes affect each location can help insurers align their exposure to risk tolerance—and, in cooperation with policyholders, potentially reduce that risk.
Verisk’s recent acquisition of BuildFax adds yet another component to its robust wildfire product suite.
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