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Navigating A Potentially Difficult Year: Data-Driven Conversation

5/2/2020

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Ghostwritten piece for client Zesty.ai
Current climate conditions in California reveal that 2020 may have a higher than normal risk for wildfire losses. The probability that California will undergo losses of more than $10Bn in a non-drought year is ~2.5% (1 in 40 years) but that probability jumps to 3.5 % in a drought year (a whopping 40% increase). The combination of high resolution aerial imagery, property-level loss history and artificial intelligence (AI) can yield actionable insight into where future fires are more likely to flare up and how structures may fare if involved in a fire perimeter. That data can be used to help insurers better understand risk and increase transparency with homeowners, agents, and regulators.
PictureWritten for client Zesty.ai
California’s unrelenting wildfire threat faces additional challenges from ever-increasing scrutiny and government regulation. For carriers and reinsurers who underwrite property insurance in the state, things are getting more complicated.

The increased severity of recent years’ wildfire events combined with the failure of traditional catastrophe risk models, it has become more difficult for carriers to underwrite property risk in California. While many of us associate “wildfire season” with summer through early fall, what happens during the preceding winter and spring is equally important. In California, summer typically brings prolonged spells of hot weather, strong wind activity and notably little precipitation. Reduction in the amount of precipitation (rain and/or snow) during preceding winter and spring months—a situation California is experiencing more and more— results in drought. These drought conditions further contribute to a heightened potential for significant wildfires.

California Under the Microscope: Drought is a Leading Indicator
Early in the winter, drought conditions persisted around California. “State firefighters have responded to280 small wildfires since the beginning of the year [2020]. In the same period last year [2019], there were just 85 reported fires,” cited a spokesman from the California Department of Forestry and Fire Protection, Scott McLean, in a February 28 NY Post article. One of the larger fires, the Antelope, Sierra County fire resulted in statewide attention.On March 3rd, dry conditions led to fire evacuations near Riverside, California, when a fire spread along the wildland–urban interface. Since February, soaking rains in the southern half of the state brought 41.8% of California to normal rainfall levels as of mid-April. Northern California is still contending with significant drought, suggesting that we may still have a significant fire season ahead of us this year for portions of the state.

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To assess the likelihood and level of losses from potential wildfire events, we should consider three key variables: heat, wind, and lack of moisture. Both heat and wind activity can only be predicted in 10 to 14 day forecast windows. These narrow and not always accurate windows are of little use to the insurance industry. The third variable however, lack of moisture, is a strongly correlated indicator for a challenging year. Lack of moisture can be more easily tracked and its absence affects an entire season. From studying more than 1,200 wildfire incidents, we know that prolonged drought-like conditions tend to exacerbate the spread of wildfires.

Historically, the Sierra Nevada snowpack provides roughly 30% of California’s water. These images give a clear indicator that very little moisture is present, compared to the same time in 2017. On April 1st, the California Department of Water Resources stated that March precipitation had not been enough to offset the dry winter. As of April 14th, experts deem roughly 22% of the state to be “abnormally dry,” and almost 23% is experiencing “moderate drought” conditions. In addition, nearly 13% of the state has reached “severe drought”. The chance that rainfall will occur in California between May and the end of October is very low. While late season rain through the end of April is possible, mounting evidence seems to portend that 2020 losses have a much higher chance of being significant, particularly in Northern California, if prolonged periods of little precipitation prevail. Read full report by downloading the PDF:
2020_wildfire_season_preview_-_zesty_ai_1_.pdf
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2020 California Wildfire Season and Coronavirus, Zesty.ai CEO Thought Leadership Article

4/25/2020

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Ghostwritten piece for Zesty.ai founder & CEO, Attila Toth;  appearing on Zesty.ai LinkedIn page

Like most business leaders, COVID-19 has absorbed a large portion of my mindshare for the last month. Our company has a deep focus on foreseeing climate risk. We can’t help but think ahead to how our customers and communities may be affected by the virus for the months to come. The inherent danger that a potentially intense wildfire season poses is further increased by a lack of preparedness. In case of a devastating fire event need for continued social distancing would make the implementation of a potential evacuation order extremely challenging. Also, smoke not only poses a nuisance to people that are sheltered in place, but a serious threat to coronavirus patients with compromised respiratory systems.

With the tremendous and ever-growing financial cost going to fight the spread of coronavirus, let alone the breadth and risk of lives to first responders, how will California face a second major disaster—a difficult fire season? Despite late-winter rain, 75% of California is still considered either abnormally dry or in a moderate drought. Even an average fire season in 2020 could be disastrous when combined with the impact of coronavirus. California’s governor has already warned state agencies to expect less funding as the ailing economy will result in far less tax collected than initially expected.

The economic impact of coronavirus has not yet been measured, but it will be enormous. What we do know is that as of early March, the Legislative Analyst's Office warned that collection of capital gains tax alone in California will be several billion dollars lower than expected. The question on the minds of people near historic burn zones is: will a beleaguered California still have cash and manpower left to fight a second enemy—the upcoming wildfire season? The stress, not to mention levels of danger, being experienced by the state’s finite number of trained first responder doctors and nurses is as profound as the cost. Ben Christopher's recent article for Calmatters succinctly takes up this point, stating that major fire events will: “test the resilience of California’s decade-long boom and the adequacy of its $18 billion cash reserve.”  The cost of wildfire cannot be understated. 2018 estimates saw total damage and economic loss at $400 billion and $85 billion in 2017 (includes both insured and uninsured losses and the impact on the economy). If an active fire season erupts, California and its first responders will yet again face tremendous risks while holding the line.

Coronavirus remains a massive wildcard. With the wildfire season coming, vast numbers of California fire first responders are not even able to train due to mandated shelter-in-place orders. The U.S. Forest Service has cancelled in-person fire training, planning and risk assessment meetings, and much of its preventative burn program. The burn program is on hold to avoid worsening respiratory symptoms. The agency had planned to increase burn programs in 2020 in response to the increased damage caused by recent fires.

California is an incredibly resilient place. It constantly picks itself back up, usually with the help of both disaster aid and insurance, after natural disasters like wildfires, earthquakes, landslides. The state also has an uncanny ability to rapidly redefine itself with the aid of technology. Yet, it is going to be hard. Large scale fires have become a new normal for the region. It’s not a matter of if, it’s a matter of when and how bad the season will be.

As with most San Francisco Bay Area firms, Zesty.ai is doing its part by keeping its workforce at home. While we thrive on the camaraderie that comes from working side by side, we fully acknowledge sacrifices are essential today in order to protect our tomorrow. We continue to develop tools that will provide insurers with the insights they need to better prepare for decisions about the upcoming fire season. We’re turning what could have been isolation into concentration, and making sure that we do everything we can to make sure our customers are ready for what the rest of this year may bring.

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