Catastrophe Risk Models for Wildfires in the Wildland–Urban Interface: What Insurers Need

Abstract

Insurers use catastrophe risk models to estimate loss exceedance probabilities for a range of different hazard events. The 2003 wildfires in Southern California caused over $2 billion in insured losses and increased insurer’s interest in developing risk models for wildfire in the wildland–urban interface (WUI). The three main parts of a catastrophe risk model are a hazard module, a damage module, and a loss module. The discussion below focuses on improving the hazard module of a catastrophe risk model for wildfire in the WUI with a particular emphasis on the southwest California. A database of insured and total losses from wildfire that is normalized for the effects of inflation and for changes in population and property value within the WUI is needed for calibrating model losses. Variations in the probability of fire occurrence should account for historical changes in fire suppression practices and the influence of climate variability. A property has an excellent chance of resisting ignition if flame-resistant material is used for its exterior and the surrounding area is free of flammable material.