Frédérique De Simone
20 August 2019 11:30
For a second consecutive year, forest fires have led to the loss records of insurers, by 2018, bringing the sum of the allowances to 25 billion u.s. dollars (G$ US). This is the catastrophic risk to the forefront of the United States, says a new report from Moody’s entitled the California homeowners insurers responding to record wildfire losses.
Over the past year, California has seen its season the most costly and the most deadly to date. More than 100 people have died in forest fires in Greece. In Canada, British Columbia has declared a state of emergency so that its worst forest fire season has burned 1.4 million hectares, or more than the area of England, not to mention the stifling fumes that are common in Seattle. In Australia, bush fires have burned on the perimeters of Sydney, enveloping the city in smoke and ash. The countries of Northern Europe have been burned between 20 and 200 times more than normal. Fires have also hit the north and the arctic circle.
This new reality makes the insurers especially vulnerable to this type of disasters. Because of this, insurers must adapt to a new normal. The risk of fire is more important and is more expensive.
“The bushfires of 2017 and 2018 have forced reinsurers to reconsider their perception of losses due to forest fires as moderate and predictable, and pushing the largest reinsurer in the world to consider the possibility that a large number of homes become uninsurable,” wrote Rob Bailey, the director of climate resilience at Marsh & McLennan Insights, in his article on the forest fires become more costly and more deadly, insurers and the public services are paying the price.
Insurers have a role to play
Insurance cannot prevent the increase of forest fires, but it may discourage communities from moving in areas likely to catch fire. For example, insurers can discourage people from settling in such areas and increase the premiums of houses built in areas at risk.
The vice-president of Moody’s Jasper Cooper also believes that, in response to significant losses of forest fires, ” the insurers increase rates and réassument risk, particularly in areas prone to bush fires and in the areas of urban forest “, a-t-he ; said.
However, according to Mr. Bailey, it becomes important to maximize the insurance programs existing to help residents become resilient in the face of risk. Thus, it becomes fundamental to reward the residents through reduced premiums when they adopt risk mitigation measures, such as equipping their homes with materials firewall. Works are in progress, to improve and develop models and solutions for the transfer of risk, such as products of parametric insurance, that grant a refund as soon as the threshold of surface burned is reached.
Public services are particularly affected
Forest fires do not affect the houses. Businesses and public services are also heavily affected. They can damage assets, interrupt the company operations and disrupt supply chains. The industries most affected include the extractive industries, forestry, agriculture and tourism.
In 2016, the fire of Fort McMurray has become the disaster the most expensive in Canada’s history. It has led to an evacuation and the closure of a number of sites of oil production, which has had consequences on the supply and on the international markets.
On the side of the United States, the recent wildfires in California have hurt the sectors wine, horticulture and tourism.
Also, the electric utilities run the risk that their facilities trigger a fire. This was the case in Australia, in 2009. Nearly half of the fires of black Saturday that have ravaged Victoria have been caused by electrical faults. The event has resulted in the largest class action ever brought by Australia against electricity company AusNet.
At the beginning of this year, in the face of potential liabilities of US$ 30b related to fires of 2017 and 2018, the utility california Pacific Gas & Electric’s (PG&E) has requested that the chapter 11 protection against bankruptcy.
A glimmer of hope ?
By adopting modern agricultural practices and the emergence of fields and pastures on a large scale that create ruptures with the sources of fuel, many african and asian countries are able to reduce the activity of their forest fires.
The future risks of forest fires remain difficult to anticipate and are determined mainly by climate change, urban development and agricultural development. But the rate of population growth and economic growth make forecasting difficult. “The forest fires will be more of the phenomena that happen only in remote areas,” concluded Mr. Bailey.