The recent announcements by State Farm and Allstate that they have temporarily suspended writing new property insurance risks in California was made quietly. Jake from State Farm was not featured in this message nor was Allstate’s “Mayhem” character. The shift to pause writing property insurance did not affect the appetite of the carriers for the more profitable personal auto insurance policies.
To be fair State Farm and Allstate are not alone in having second thoughts about California property, other carriers have opted for price increases versus suspending new business acquisition. The factors cited by the carriers in making this decision include climate change challenges, higher reinsurance costs affecting the entire insurance industry, and global inflation. These factors are not unique to California.
Wildfire Frequency
A report from the National Fire Protection Association in 2018, Brush, Grass, and Forest Fires, indicated that there was an average of 840 brush grass and forest fires reported every day. This accounts for 23% of the responses for local fire departments. This type of fire is generally small in size but 6% of all fires consume more than 10 acres of land. 12% of forest fires spread over 10 acres. This is based on data from 2011- 2015
The Southeast region that includes Kentucky accounts for 53% of all wildfire incidents.
The West accounts for 20% of wildfires.
The Northeast accounts for 27% of the incidents.
Recent incidents around Natural Bridge State Park in Kentucky are a local example of the hazards.
On June 9, 2023, there were wildfires burning in Arizona, Florida, Idaho, New Mexico, Pennsylvania and Washington. Canadian wildfires have contributed to air quality emergencies and flight delays across the Northeast.
This data is for the period of January to June 9 in each year.
Wildfire Data and Insurance Underwriting
The level of data available about the wildfire problem has grown immensely. Models about fire growth and hazards were once limited to the west Coast and used by regional agencies to plan responses and mitigation efforts. As fire problem grew, the need for data also grew and the United States Government stepped up their efforts to provide data. www.wildfire.gov is a key site for data on the wildfire exposures.
Companies leverage this data to create “Wildfire Scores” that can be used by insurance companies to estimate their exposure. As the use of these scores has spread across the country, the knowledge about how they are developed and what they mean has become more opaque. The use of “scores” is of particular value to insurance carriers. They can use the scores in their pricing and risk selection models that have replaced many traditional underwriting decisions.
Reinsurance costs
Our report on 2023 Property Insurance Trends discussed the trends in catastrophes that affect property insurance. Catastrophes no longer are geographically centered on hurricanes and earthquakes. Floods, wildfire, hail, drought, and flood all impact this part of the insurance market. As the wildfire exposure is more frequently recognized and documented, the reinsurers will also use those data elements in forecasting their expected loss number and related premiums.
Inflation
The cost to rebuild has been a significant factor in insurance company pricing decisions. Double digit construction inflation has been the norm since the pandemic. This additional pressure means that wildfire losses are also impacted by the construction inflation.
The Driehaus Difference
We have observed underwriting decisions based on wildfire exposure creeping into the local market. We monitor these underwriting trends and use that knowledge to help our clients find the right markets for their property insurance. Call us at 513-977-6860 or contact us via our website at www.driehausins.com