Focus on natural catastrophes: Wildfires
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The growing threat and impact of wildfires
Wildfires are natural disasters that have become more frequent and severe, posing increased wildfire risk to communities and ecosystems worldwide. In recent years, areas like California have experienced significant economic and insured losses due to these events, including the 2025 LA wildfires. Wildfires have always been essential for the forest ecosystem, but are today primarily caused by human activities rather than natural occurrences such as lightning strikes. The growing trend of destructive wildfires, partly attributable to an increase in wildfire risk due to climate change, necessitates a reassessment of wildfire risk management strategies to sustain the viability of wildfire insurance.
Understanding the wildfire threat
In many places across the globe, wildfires are becoming more frequent, larger and more severe, posing a growing threat to communities and ecosystems. Some of the most expensive years for wildfires in terms of economic and insured losses have occurred during the past decade.
Wildfires, also known as bushfires in some countries, can be a natural phenomenon of the forest ecosystem, essential for restoring nutrients to the soil, clearing out decay and helping plants to reproduce. The two primary causes of wildfires are man-made (such as fallen utility lines, careless campfires, fireworks, arson, etc.) and natural (such as lightning strikes). Globally, it is estimated that only about 5% of wildfires start naturally. In the US, over 80% of fires are started by humans, while in Canada, more than half of all fires are started naturally.
Droughts and heatwaves, which have increased in frequency and severity in recent decades, contribute to the drying of vegetation, creating potential fuel for wildfires. This dry vegetation, especially when combined with strong winds, creates ideal conditions for wildfires to ignite and spread rapidly resulting in something called "fire weather". At the same time, increased development in the wildland-urban interface (WUI) increases the number of buildings in areas with high wildfire risk, while simultaneously increasing the risk of man-made ignitions. In addition to property damage or loss, wildfires can lead to injury and death, health impacts from air pollution, business interruption, loss of harvestable lumber and land for agriculture.
Insurance implications of wildfires
The economic losses from wildfires continue to escalate with increasing frequency and severity of events.
Over the past decade, global insured wildfire losses have far surpassed previous records. Although wildfires in the US (particularly California) make up the majority of the losses, wildfires in Canada, Australia, and Europe have contributed significantly. The growing trend of droughts and heatwaves, which have increased in frequency and severity in recent decades, has made it imperative for insurers to reassess their risk management strategies and pricing models to sustain the viability of wildfire insurance.
Due to property concentration and high property values in wildfire-exposed areas, the US experienced 9 of the 10 most expensive wildfire events since 1970.
Some of the most expensive years for economic and insured losses from wildfires have occurred since 2016. From 2014 to 2023, wildfires globally cost approximately USD 106 billion in economic losses and USD 74 billion in insured losses (adjusted to USD 2023). Increasing wildfire losses for insurers have caused some to curtail writing property coverage in heavily impacted areas.
Managing wildfire risks
The best risk management is to implement proper mitigation and adaptation measures to address the current reality of increasing wildfire activity. Communities can restrict development in the WUI to reduce loss of life and property when wildfires occur. Local governments and property owners can also reduce financial risk through proper maintenance of underbrush to reduce burnable vegetation, building with flame retardant materials and maintaining safe perimeters around buildings. Detailed and easily implemented evacuation plans are also critical to avoid injury and loss of life for those living in wildfire-prone areas.
As downed power lines are a significant source of wildfire ignition, utilities operating in hazard locations must manage the changing risk landscape to minimise wildfire occurrence. Beyond upgrading electricity poles, this means following the latest industry best practices in maintaining power lines and the vegetation around them, to prevent fires in the first place.
Finally, reducing CO2 emissions remains an essential component in reducing the impacts of climate change, including the increase in wildfire risk.
Frequently Asked Questions on LA wildfires (FAQs)
What are the primary climate factors contributing to the intensification of wildfires in Los Angeles?
Southern California's climate, characterized by dry summers and strong seasonal winds like the Santa Ana winds, creates a perfect environment for wildfires. The preceding two years were unusually wet in Southern California, which fueled above-average growth of vegetation. The months leading up to the fires, however, were some of the driest on record in the region. The result was that Southern California had large amounts of very dry fuel on the ground when the unusually strong Santa Ana Winds started blowing in early January. Urban development in wildland areas has also increased both the chance of ignitions and the impact of these fires.
How has climate change impacted the frequency and intensity of wildfires in California?
Climate change has extended the fire season and increased the likelihood of extreme heatwaves and dry spells leading to increased risk of wildfires in California. The drought has dried out vegetation and weakened tree health, resulting in higher fuel loads. Additionally, the region's mountainous terrain and shifting wind patterns make firefighting efforts more challenging.
What measures can communities take to reduce the risk of wildfires?
Communities can restrict development in the wildland-urban interface (WUI) to reduce loss of life and property when wildfires occur. Local governments and property owners should maintain underbrush to reduce burnable vegetation, build with flame retardant materials, and maintain safe perimeters around buildings. Detailed and easily implemented evacuation plans are also critical for those living in wildfire-prone areas.
Why are buildings in wildland-urban interface (WUI) particularly vulnerable to fire risk?
What makes these zones susceptible to wildfires is the combination of open space, parks and houses, with often highly flammable shrubs and trees growing on and in-between housing lots.
Homeowners can reduce their individual fire risk by removing vegetation directly adjacent to their house (ie the home ignition zone), changing roofing and building materials, and following additional Firewise recommendations.