Navigating A Potentially Difficult Year: Data-Driven Conversation

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.

Written 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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