News & Insights

The growing frequency and severity of wildfires are becoming a major concern for homeowners and businesses, as economic and insured losses from incidents grow in many parts of the world.

As Gallagher outlined in its recent World on Fire report, of the 19 individual billion-dollar insured wildfire events on record in the US, 15 occurred in the last decade.

One of the factors cited for the increase in wildfire events is ongoing change in land use, including property development in the wildland-urban interface (WUI).

The role of climate change

According to Brian Kerschner, western hemisphere meteorologist at Gallagher Re, a warming climate, in tandem with shifts in precipitation patterns, has aided an increased frequency of larger fires across the western US.

Statistics from the California Department of Forestry and Fire Protection on the 20 most destructive wildfires in California's history show that for both number of structures and acreage destroyed, 15 were in the past 10 years, and seven were in the past five years.¹

"Urban expansion and continued development in the WUI and intermix areas amplify the economic risks of wildfire. This development puts more exposure into higher-risk wildfire zones, while concurrently increasing the potential for human-caused fire ignition," says Kerschner.

Defining the wildland-urban interface

The WUI is defined as the area where urban development (housing and other structures) and wilderness (unoccupied land) mingle. The area is subdivided into "interface WUI," where developments are adjacent to large wildland vegetation areas, and "intermix WUI," where structures are scattered among wildland vegetation, without a clear boundary between the two.

A 2018 study published by the Proceedings of the National Academy of Sciences (PNAS) and led by Professor Volker Radeloff found that the WUI in the US grew rapidly from 1990 to 2010, both with respect to the number of new houses built (up 41% to 43.4 million) and land area (up 33% to 297,299 square miles), making it the fastest-growing land use type in the 48 contiguous states.

At the same time, the study found the number of houses within the perimeter of wildfire areas increased from 177,000 in 1990 to 286,000 in 2010, a growth rate of 62% compared with an average US housing growth rate of 29%.

Business exposures

As Gallagher noted in the World on Fire report, in addition to threatening homes, wildfires pose both direct and indirect risks to businesses. Direct risks include physical damage to buildings, vehicles, machinery, and infrastructure and operational disruptions. But the indirect risks can be just as disruptive and costly, causing contingent business interruption from disrupted supply chains, or loss of attraction for tourism and hospitality businesses — as seen with Hawaii's 2023 Lahaina wildfire.

Mike Keenan, risk control manager for Gallagher National Risk Control, notes in the report that wildfire exposure also has become a significant issue for the agricultural sector in terms of both crop and livestock losses. Rural industries such as wine production and forestry are also vulnerable to heightened wildfire risk.

Utility companies, particularly power and water, face the prospect of physical damage to infrastructure from wildfires as well as potential liability for ignitions their equipment caused. One of the most destructive fires in California to date, the 2018 Camp Fire, was triggered by an electrical transmission line failure.

Mitigating wildfire risks

The US 5th National Climate Assessment (NCA5) report details how, in two key US regions — the west and southwest — federal fire suppression policies, widespread logging and livestock grazing, and climate change have increased tree density and large areas of dry vegetation that provide fuel for wildfires.

A number of mitigations can be implemented to reduce wildfire risks, from clearing brush/undergrowth and thinning tree density to integrating fire-resistant materials in structures.

However, the NCA5 notes that alongside hardening measures for homes and businesses in the WUI, wildfire risk can also be lessened by zoning, ordinances and building codes. It suggests that a more coordinated approach by government agencies, state authorities and community and business groups is needed going forward.

In the meantime, businesses should ensure they have tried and tested continuity plans to reduce operational disruption and limit physical and business interruption losses.

Published October 2024