September 27, 2023

Does Low Wildfire Risk Create a False Sense of Security? Spoiler: Yes

19 minutes

Knowing the wildfire risk of a home is becoming increasingly important — both for homeowners and insurers. However, it is insufficient to simply know that there is a probability of a wildfire occurring at a certain property. It is imperative to understand the development of historic risks into current risks and how this score will evolve in the future. After all, low risk today does not mean no risk tomorrow.

While only about 9% of U.S. properties meet the threshold for high or extreme wildfire risk, it is worth questioning why wildfires are creating increasingly large damage figures for homeowners and insurers. In short, climate change, where homes are built, and their construction type all play a role.

However, that is not the full story.

Understanding how risk scores are created, what a property’s risk score actually means, and knowing how to promote mitigation — even among homes that qualify as low risk — are essential strategies for maintaining safety in environments that are experiencing prolonged and more frequent wildfire seasons than usual.

In this episode, host Maiclaire Bolton Smith sits down with CoreLogic Chief Actuary Howard Kunst to talk about wildfire risk, how to use a risk score to map those potential threats, and what different actions insurers can take based on the score.

In this Episode:

2:14 – How do we calculate wildfire risk?

3:25 – How are these scores used and why are they different than probabilistic models?

7:04 – How long is a risk score valid, and why is it wise to annually evaluate risk scores across a property portfolio?

8:52 – What are the thresholds for low, medium and high risk? Why are nearly all U.S. properties low risk?

12:08 – Erika Stanley goes over the numbers in the property market with The Sip.

13:15 – Why are low-risk areas like Maui, Hawaii seeing wildfire events that cause widespread devastation?

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