The FINANCIAL — Catastrophic wildfire losses are on the rise, but it’s not just property insurers that are expected to bear the brunt of future claims. Insurers across several lines of business are warned to be mindful of their exposures, and are reminded that they have an important role to play in mitigating future wildfire risk, according to a new report from Lloyd’s.
In the final days of June 2013, a wildfire ravaged land around Yarnell, Arizona, killing 19 fire-fighters – the worst reported death toll from a US wildfire since 1991. The economic and insured loss from the event is yet to be confirmed, but it is expected to run into millions of dollars, according to Lloyd’s, the world’s specialist insurance market.
US wildfires cost the US insurance market $595m in 2012 alone, and according to a new report from Lloyd’s – Wildfires: A Burning Issue for Insurers? – insurers can expect losses to increase. Globally, wildfires have caused $52.3bn in economic losses since 1984, the report says, and the US – one of the countries hit most frequently by wildfire catastrophes – experienced losses of $28.5bn between 1980 and 2011.
“Many of the properties at risk from wildfire are very valuable, meaning wildfires can lead to very high economic losses as well as insured losses,” said Sandra Gonzalez, Emerging Risks and Research Executive at Lloyd’s. However, she added, wildfire risk is still relatively small compared to some of the larger catastrophe perils such as hurricanes or earthquakes, which cost the insurance industry far more in losses each year. Tornadoes, for example, cost the insurance industry more than $25bn in 2011 alone, according to the report.
Property is the most exposed line of business to wildfires, as the majority of loss results from burned property structures and their contents, and these losses are usually heavily concentrated in residential areas. “Largely, wildfires affect homes that have been built on the outskirts of cities. However, there is an occasional business risk – for instance, colleges and universities can be located in areas that are prone to wildfires,” said California-based Wade Pitman, Western Property Manager for XL Insurance.
Yet wildfires are not exclusively a property peril, and in fact affect several non-property insurance lines. “When you think of natural peril the first line of business that comes to mind is probably property, but wildfires are also a big risk for liability insurers,” said Gonzalez, explaining that wildfires are one of the few natural perils that can be caused by human activities such as poorly maintained power lines.
Following a wildfire, business interruption may also occur, with sectors most at risk including forestry and agriculture. Motor is another line of business which can be affected by wildfires. Following a wildfire event, there may also be repercussions on health insurance because of secondary health problems caused by smoke, smog, burns or even water contamination from the fire, the report says.
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