Natural disaster damage losses paid by insurance companies have been doubling every
five to ten years since at least the 1960s (Kovacs, 1999). The largest losses have been due
to hurricanes, earthquakes, tornadoes, hail, winter storms and wildfires. This alarming trend is driven, in my opinion, by three primary factors – more people and property are exposed to Nature’s hazards; the frequency of many extreme weather events is
increasing; and critical infrastructure is aging.  This exposure is likely to rise further in
the years ahead and scientists, practitioners and policy makers should work to reduce our vulnerability to Nature’s hazards.

The topic of this paper is urban/wildland fire, focusing on insurance and wildfires. Interest in this peril began with the California wildfires of the early 1990s, and this paper will set out the reasons why insurers may expect this interest will grow in the years
ahead.

This paper will set out a brief history

of the insurance industry, with a focus on fire risk; then describe the trends in major wildfire losses; and conclude with an overview of the role insurers will likely play in future wildfire management. The focus of this paper is on the experience of, and expectations for, insurers in the United States and Canada.

A Brief History of the Insurance Industry
Risk management and insurance-like practices have been in place for a very long time.
For example, there are many references to insurance-like behaviour in the historic
literature, including logbooks from Chinese boat captains almost 5,000 years ago who
were managing their cargo much like that documented in the marine insurance literature
today (Bulau, 1953).
The modern insurance industry, however, began in England shortly after the great
London fire of 1666 (Hives, 1985). Insurance companies were established at that time to
offer homeowners' fire insurance similar to that available today. During the 1700s, this
urban fire insurance coverage was refined to better meet the needs of homeowners and
businesses and fire insurance industries were developed in the United States, Canada and
across most of Europe.

In the 1800s, the industry learned the
importance of partnership with public officials
to reduce losses. In particular, all fire fighting
equipment at the beginning of the 1800s was
owned by insurance companies and used
exclusively to combat fires on property owned
by customers (Hives, 1985). Nevertheless,
within a few decades this equipment was
owned by municipalities and used to protect all
property owners in the community (Hives,
1985).
Over the course of the 20th century, the
industry expanded to cover many other
exposures. Homeowners' fire policies were
expanded to include coverage for theft, and
other catastrophes such as wind, hail and winter
storms. Business typically purchased multiperil
coverage, including fire with other cover.
Automobile insurance has become the most
significant product offered by most companies.
The industry also provides protection for those
concerned about injuries at work, and a broad
range of other products.
The 20th century also brought major improvements in fire insurance coverage.
Today every community in Canada and the United States is rated by the insurance
industry in terms of its capacity to respond to a fire. Communities viewed by the
insurance industry as operating better fire protection services are rewarded with lower
fire insurance costs. Throughout this period, deaths and damage from urban fires have
been declining.

The industry's roots began with urban fire coverage, but today fire damage
accounts for less than ten percent of industry claims, and wildfires are much less than one
percent (ICC, 2000). Interest in other areas, however, has not diminished the significance
of fire insurance for insurers. Most homeowners and businesses in North American
presently have valid fire insurance coverage. This coverage is very comprehensive. The
policyholder is covered for all fires, other than policyholder arson or those due to war or
insurrection. The typical fire insurance policy does include wildfires.

Trends in Wildfire Damage
Industry interest in wildfires began with large losses in the early 1990s in California,
although the evidence shows that there have been major wildfires in almost every part of
Canada and the United States at some point in the past century. Wildfires occur more
frequently in the West, but the entire continent is vulnerable (ISO, 1997). There are tens
of thousands of wildfires each year, destroying millions of acres of forests and grasslands
(NIFC, 2000). During the 1990s the U.S.
National Fire Protection Association estimates
that more than 900 homes were destroyed
each year, on average, by wildfires (USDA et
al, 1995). In 1916 a Canadian wildfire killed
228 people in Northern Ontario, and was
reminiscent of the 1825 Miramichi fire which
was responsible for the death of up to 500
people in Atlantic Canada (McClelland &
Stewart, 2000)

Wildfires occur on a regular basis. Almost half the wildfires start with a
lightening strike, and these fires account for about 85 percent of the acres of forest lost
due to fires. Most of the other fires start because of human factors, but these fires
typically do less damage (CCFM, 2000). Many factors contribute to wildfire risk,
including the weather and the slope of the land (ISO, 1997). Foremost there must be
something to burn.
The Insurance Services Office has maintained from 1970 a consistent database of
insurance payments in the United States due to wildfires and other catastrophes. During
the 1970s and 1980s there were eight major wildfires which led to insurance payments of
between $5 and $43 million for each event, or adjusted for inflation, losses between $10
and $100 million (ISO, 1997). All monetary data in this paper are in U.S. dollars.
Between 1990 and 1993, however, there were four enormous fires in California which led
to several thousand insurance payments totalling $265 million to $1.7 billion for each
event or, adjusted for inflation, a total payment of $3 billion (ISO, 1997).
These large losses focused industry attention. Wildfire losses remain an order of
magnitude smaller, however, than the multi-billion industry losses from the large Atlantic
hurricanes and California earthquakes, but they are now seen by insurers in some regions
as important as the frequent hail and tornado losses in the prairies, and the winter storm
losses in Canada and northern states.
The Insurance Bureau of Canada has maintained a similar catastrophic loss
database for Canadian insurers since the early 1980s. Over this period, there were
thousands of fires in the country, but there was not a major wildfire loss for the insurance
industry. The industry has not yet experienced a Canadian wildfire loss in excess of $10
million (ICC, 2000).

Insurers in Canada and the United States are concerned about growing
vulnerability to wildfire damage. Three factors include: more people and property
exposed to this peril (USFA, 2000); the general warming of the climate, which has
increased the frequency of lightening strikes and the likelihood of extended periods of
drought in some regions; and decades of fire suppression has increased the fuel available
to burn in several areas (Parker et al, 2000).
The largest concern is the growth in the number of people and property at risk.
More than ever people are moving into remote area with the desire to “get back to
Nature” (ISO, 2000). Typically, homes built in these areas put more emphasis on
ensuring a spectacular view and less on the
dangers around them. The knowledge exists to
make homes less vulnerable to wildfire.
Firewise homes have a survivable landscape
and use appropriate building materials.
Investments of a few hundred dollars can
significantly reduce the risk wildfire damage
(IBHS, 2000).
Also our climate is changing
(Hengeveld, 2000). The are important
differences in the specific changes taking place across Canada and the United States, but
most areas are warming, however. Climatologists have found that warming temperatures
bring an increased frequency of lightening and more frequent periods of extended
drought – conditions that increase the risk of wildfires (Parker et al, 2000).
In addition, several decades of active
fire suppression has increased the amount of
brush and dead wood in many forests (ISO,
1997). This is more evident in the United
States where fire suppression efforts have been
more intensive than is evident in Canada as a
result of a larger population base. More
potential fuel increases the risk of a major
wildfire. Accordingly, there has been a
significant increase recently in the number of
controlled fires to take away some of the build
up. The easiest way to stop wildfires is to take away the fuel (Vicars, 1999).
To summarize, in the 1990s there were several large wildfires in California which
led to insurance payments of $3 billion (ISO, 1997). These events focused industry
attention on this peril and the factors that may further increase the risk of wildfire damage
in the years ahead. These include more people and property living at risk, climate change
and more fuel available to burn.

Role of Insurers in Wildfire Management
This final section discusses the role of the insurance industry in wildfire management. It
addresses compensation for property damaged by fire and three other elements --
education through industry participation in wildfire management efforts and public
communications; incentives driven by industry pricing and other practices which
encourage better risk management by property owners; and, promotion of improved land
use practices and adequate resources for wildfire management. While some of these
elements are evident today, I argue that the others will emerge increasingly in the years
ahead.
First and foremost, the industry is
responsible for compensating fire victims. A
home or business damaged because of a fire is
covered under a fire insurance policy and the
victims are compensated promptly. This
coverage is valid for urban fires, wildfires and
interface fires. Should the number of homes and
buildings damaged in wildfires increase
significantly in the years ahead, it will be
interesting to see if more insurers seek
compensation from those responsible for fire
management.
Ultimately, homeowners and businesses are responsible for protecting their
property. The insurance industry has always been an active participant in education and
outreach programs working to help the public to better understand actions they can take
to reduce the risk of traffic accidents, theft and fire damage. These programs have largely
focused on urban centres given high concentration of Canadians and Americans in larger
communities. However, there is a growing capacity to target messages to specific
audiences, and there is more clear advice available about how to reduce the risk of
wildfire damage (Partners in Protection, 1999). In the United States, the insurance
community has been working for several years now through the Institute for Business and
Home Safety (IBHS) in Tampa to participate in discussions about wildfires. IBHS’s
Wildfire Peril Committee will soon publish a homeowners’ guide to wildfire retrofit.
Also the Insurance Services Office has published a report on the wildland/urban fire
hazard. In Canada, the Institute for Catastrophic Loss Reduction (ICLR) began a wildfire
research program last year. Also, the Insurance Bureau of Canada has participated in
conferences promoting greater action to address this threat. The insurance industry
endorses the FireSmart program of Partners in Protection that has been developed by
wildfire experts to advise homeowners how they can better manage this threat.
Insurance practices are a tool for promoting better management by property
owners. Pricing and other conditions act as incentive to reward good behaviour. The
Insurance Services Office (ISO) has published proposed surcharges that would increase
the cost of insurance by up to 2½ percent for wildfire-vulnerable homeowners who do not
install approved roofing materials, fail to clear the area around their home and/or are not

accessible to fire fighting services (ISO,
1998). The surcharges remain small relative to
the cost of changing behaviour, so insurance
savings alone are not sufficient to justify a
change in practices. Also, the tools insurers
currently use to differentiate fire risk when
determining pricing do not include many of
the large cost factors in wildfire management.
Perhaps the largest incentive may come
through concerns about availability of
coverage, and not pricing, as potential future
increases in the frequency of losses could lead more companies to reduce or stop
providing coverage in certain vulnerable regions until community and property owner
practices change.
ISO have also recently launched FireLine as a tool for wildfire risk management.
It combines street maps; satellite maps that measure fuel density; and topographical maps
showing slope, elevation and severe weather frequency. This new product shows how the
insurance industry is determined to underwrite high-value wildfire risk based on accurate
measures of risk.
Finally, improved land-use planning and adequate resources for wildfire
management are critical. Most work by insurers and the policy research community
emphasizes the important role of land-use planning. Each year more and more Canadians
and Americans are living in areas of hazard risk, including the risk of hurricanes,
earthquakes, flooding, winter storms, tornadoes and wildfires. Hazard risk needs to be an
increased part of our planning efforts. This is a primary theme of the report “Disasters by
Design” by Denis Meleti and Mary Fran Myers, who argue that nature’s hazards become
natural disasters because of poor decisions made by people (Mileti, 1999). The insurance
community shares the view that the knowledge exists to reduce our vulnerability to
Nature’s hazards, and that the industry is a natural ally in the promotion of better land use
planning and also adequate resources for wildfire management.

Conclusion
Disaster damage costs paid by insurers and by governments in Canada and the United
States are increasing at an alarming rate, and the factors driving this are poised to
deteriorate further. The insurance industry is a natural ally in the dialogue about hazard
management for wildfires and other major hazards.
Insurers have been a driving force for the past three centuries in the promotion of
better practices for the management of urban fires. The industry has also been interested
in wildfire peril for the past decade, and I believe that the industry’s involvement will
grow in the years ahead. Still, wildfire losses remain moderate for the industry, less than
one percent of overall losses, confirming that the industry is naturally more aggressive at
this time in its efforts to address selected other hazards, including hurricanes and
earthquakes. Nevertheless, beyond compensation for property damaged by fire, three
areas where the industry will likely be involved in the years ahead in wildfire
management include -- education through industry participation in wildfire management
efforts and public communications; incentives driven by industry pricing and other
practices which encourage better risk management by property owners; and, promotion of
improved land use practices and adequate resources for wildfire management.