Fires Spur Adoption of Risk Assessment Technology
The devastating California wildfires, with insured losses potentially reaching $50 billion, are accelerating the adoption of advanced risk management technology. Experts believe the industry must embrace more sophisticated data and modeling to better assess wildfire risk, alongside community-level efforts to enhance resilience.
On January 31, 2025, the California Department of Forestry Protection confirmed the containment of the Palisades and Eaton wildfires, which ignited on January 7 following Santa Ana winds and destroyed neighborhoods in Los Angeles County. These events highlight the increasing frequency of wildfires, severe convective storms, and winter storms.
“Wildfires, severe convective storms and winter storms are frequency perils,” said Karen Clark, president and CEO of Karen Clark & Co., a catastrophe modeling firm. She emphasized that these “secondary perils” require a different approach, leveraging physical modeling with atmospheric conditions, machine learning, and high-resolution wind patterns.
During its client meeting last June, KCC demonstrated potential wildfire scenarios, including a $30 billion event. Clark stated, “This fire unfolded exactly the way we said it could happen, very dry conditions, random ignition and a strong Santa Ana wind event.”
Lianne Bosko, the property lines technical director at Zurich North America, noted the availability of robust risk assessment tools, but stressed the importance of on-the-ground implementation. “The problem for insurers is that you can have a tool that tells you what the risk is, but the risk is highly dependent on how things are implemented on the ground, how we’ve built our structures, how we’ve designed our communities, the sorts of resilience that we’re building into these areas, or not building into them,” she said.
Pat Blandford, CEO and founder of Green Shield Risk Solutions, a managing general agent, observed a heightened focus on exposures in the western US, with a growing reliance on risk models. Green Shield emphasizes risk mitigation at the point of underwriting, assessing building materials (roofs, siding, windows) and addressing surrounding vegetation to minimize fire hazards, Blandford explained.
Data and modeling advancements have also helped expand the use of parametric insurance to cover wildfire risks. This type of coverage, similar to those used for windstorms and floods, triggers payouts based on pre-agreed data points such as wind speeds or rainfall amounts. Cole Mayer, head of parametric at Aon PLC, highlighted the “significant” development in the parametric sector driven by improved data availability to cover “secondary perils.” Parametric triggers are designed around an independent index correlated with the loss and the underlying exposure, Mayer said. Capital providers are now more comfortable with risk quantification because of improved data, bringing more resources into the sector.
Guillermo Franco, global head of catastrophe risk research for Guy Carpenter & Co. LLC, emphasized the critical role of modeling. “Wildfires present unique modeling challenges, from atmospheric changes, such as winds driving them, to shifts in vegetation providing fuel,” though he sees ongoing improvement and anticipates further industry progress. Some insurers are still learning to fully trust the tools, Franco noted.
Isaac Espinoza, CEO of Kettle, a managing general agent using a proprietary wildfire model, described the model’s structure, which includes ignition, spread, and building vulnerability models. “First we have what we call an ignition model. This ignition model is based on a number of variables contributing to where the actual wildfires can start,” he said. “We also have what we call a spread model. The third is what we call a building vulnerability model, and that is taking into consideration the partial loss component based on features surrounding the home that contribute to the burnability of a property.”
Parametric insurance coverage for wildfires is becoming increasingly valuable. These policies, which can be used for primary coverage or reinsurance, are tailored to specific needs. Tanguy Touffut, co-founder and CEO of Descartes Underwriting SAS, described policy options ranging from straightforward “fire-in-a-circle” policies for high-value properties to custom “burnt area” structures that assess hectare loss.
Franco noted an increase in providers within this field, with data sources like NASA’s Fire Information for Resource Management system bolstering the viability of parametric coverage. Kettle’s fire-in-parcel coverage, offered through a Lloyd’s of London syndicate, has limits reaching $10 million. Espinoza said Kettle sold its first policy in 2021 and has more than 100 policies in place.
London-based Skyline Partners Ltd., a managing general agent specializing in parametric coverage, has also seen increased interest, according to co-founder and executive director Laurent Sabatié. He stated, “We’ve seen demand for commercial property wildfire to cover carve-outs and sublimits for high-net-worth homeowners.”
