Ensuring Insurance Covers Risk

In 2018, we witnessed the worst fire in California history. It happened quickly and unexpectedly. In just under two hours, hundreds of acres across the town of Paradise had been destroyed.

The short documentary film, Fire in Paradise, provides a chilling recount of what happened that day in November. At one point, there was only one way out of town for residents fleeing the scene and traffic was just not moving.

Yet, even after such a horrific tragedy, people still remained hopeful. Residents just wanted to return back to their land and rebuild from scratch—in a town that lost roughly 95% of its buildings.

Gates Frontiers Fund, Carol M. Highsmith Archive, Library of Congress, Prints and Photographs Division.

Fires at Large

Fires are no longer a trend that makes headlines and then retreat from the spotlight. They are a continual stressor for many people as they increase in frequency each year along with our changing climate.

Much of the Northwest has felt similar effects. According to the US Department of Agriculture, Oregon’s 2020 wildfire season included much larger and more severe fires than in recent decades, causing extensive damage to communities west of the Cascade Range.

In some areas, more forest coverage burned in just two weeks than had in the last 50 years.

While planning for the threat of a fire is quite necessary, it has also proven difficult. Homeowners who know they’re in high-risk areas may regularly take the proper precautions to minimize their chances of a disaster, such as placing burn bans or regularly clearing brush and overgrowth, but for others it’s not so easy.

It has become harder to predict where and when a fire might break out, or rapidly spread, as aspects of the land evolve to catch up with the climate.

For example, the drought in California has led ecologists to examine native plants that generally hold moisture during fire season. Recent heat waves have made it more difficult for water-retaining plants to flourish and what usually serves as a water barrier to flames spreading has now started to dry up.

While it’s already unbearable to think of losing loved ones to a fire, or watching important buildings perish, there are also concerns to be had in the aftermath of a fire.

Enter: health and finances.

Image Source: Pixabay

Avoiding Risk

This leads us to consider things like, say, insurance.

When it comes to the revitalization process, there’s significant headway to be made. However, homeowners in places like California are now facing financial distress around risk assessment.

Insurance rates have gone through the roof and deductibles continue to increase for agencies. Perhaps understandably, they are afraid of risk in areas that seem likely to cost them. Additionally, some insurers are refusing to write certain areas or are just not even renewing policies.

For some, premiums have become so high it’s almost cheaper for them to move.

In an earlier video we produced for Milliman, one of the partners at CoreLogic (a supplier of analytical platforms that help housing market partners find people homes) gave an excellent summary of the insurance problem.

“More and more homeowners are relying on their insurance to be their risk management—to tell them what’s good and bad, to provide them those credits,” says Tom Larsen, Principal in Industry Solutions at CoreLogic. “This whole business, it’s about understanding the risk.”

Residents might be waiting on insurance agencies to tell them what’s good, but insurance agencies feel it’s also the responsibility of residents to make sure they’re coming to them with something fail-safe.

Agencies have essentially placed the onus on homeowners, claiming they haven’t really held up their end of the deal. For agents to do their jobs correctly, they say they need residents to be more proactive to minimize the chance of a fire spreading in the first place. If a home is in a danger zone, there need to be certain precautions taken so agents can be more confident when insuring them.

This chicken-and-egg situation has created a lot of headaches, but a light at the end of the tunnel seems to be emerging.

Moving Forward

Knowing how to prepare your home to be more fire-proof is critical, but it requires education, investment and time. Living in a fire-prone area can set expectations early on, but it can also muddy things if there isn’t an ongoing conversation. As the climate changes, the risk assessment unwittingly changes.

The question then becomes: how do we stay abreast of these changes? It seems homeowners will either have to start over from scratch to protect their homes, or learn how to consistently and appropriately make the updates that will.

Video created by School of Thought, for Milliman, Inc.

Unfortunately, sometimes it takes a horrific tragedy for there to be a breaking point.

One of our longstanding clients, Milliman, recently came to the table to work on finding a solution to this issue. Their goal was to make sure that players on both sides could feel equally protected.

Milliman is an actuarial firm that calculates risk using various analyses. In this way, it can help insurers make better predictions and create better policies. Their teams examine patterns across our real-world environment and come up with solutions that can evolve along with our society.

Milliman’s goal was to work with officials, in areas like Paradise, to better understand the myriad effects that can lead to a devastating wildfire. By doing this, residents, local officials, and policy makers can better work together to develop a plan of action that places prevention at the forefront.

Ultimately, the idea is to cover all the bases so that insurance agents can view residents as less of a risk when buying a home or renewing a policy.

Even though Paradise suffered a terrible fire, it was never on the list for insurers to be wary of.

Given the climate’s unpredictability, it should serve everyone to take a moment to reexamine their relationship to the land. What is flammable on your property? How would certain plants and landscaping react in the event of a fire?

These are questions people probably don’t think about too often, but more and more people will begin to figure out the answer whether they’d like to or not.

Lessons in Fire Prevention

Our agency traveled to Paradise to capture footage of how these discussions were shaping up. Through Milliman’s project, people were starting to ask smarter questions and take time to reevaluate what works and what doesn’t. It was thoroughly inspiring.

What quickly became apparent was that this one little, very unlucky, town of Paradise was on its way to becoming a beacon of change.

Entire blocks of Paradise were decimated in the fire in barely a 24-hour period. What this created was a clean slate for the city. This meant that residents could actually start over. By testing new strategies, they could grow to be more adaptable and flexible.

Since many of the residents who lost their homes were intent on rebuilding from Day One, it was paramount that they build again with this disaster in mind.

Source: Pixabay

There was plenty of talk around moving forward, and the focus was being placed on different ways of building structures, planning communities, and designing home features.

Things like putting in non-combustible fencing, installing ember-resistant venting, and placing non-combustible mulching several feet from the home, can be a game-changer when trying to prove to an insurer that a homeowner has thought of all the possibilities and taken the precautions to ensure their homes aren’t a liability.

Every past risk had suddenly become an opportunity to make more educated decisions; setting the stage for how other cities could protect themselves against a future disaster like they had experienced.

Nature can be unwittingly unpredictable, but calculations are getting easier as we learn more about our natural surroundings and how to live in flow with the planet.

The more that’s known about which building materials will help or hurt us, or how landscapes can be designed with the worst-case-scenario in mind, the better chance we have of staying safe.

While we might not know everything just yet, it’s safe to say that adaptability is something us humans are incredibly good at. If nothing else, that’s something to be hopeful about.

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Editor’s Note: Learn more about the work Milliman and CoreLogic are doing with catastrophe models outlined in a recent whitepaper.