September 18, 2015 by Canadian Underwriter
Most states in the United States lack a sustainable financial strategy to respond to the changing climate landscape, including wildfires, notes a study released Thursday by Swiss Re and Johns Hopkins School of Advanced International Studies (SAIS).
“Although individual decision-makers largely agree that the ‘rear-view mentality’ regarding wildfire costs is no longer acceptable, the urgency of covering immediate fire suppression needs limit the resources and capacity available for long-term planning,” Alex Kaplan, senior client manager for Swiss Re Global Partnerships, notes in a joint Swiss Re/SAIS statement announcing the release Fueling Resilience: Climate and Wildfire Risk in the United States.
The study explores natural disaster management policy, considers ways that the U.S. can manage its vulnerability to wildfires, and examines public financing for wildfires and the role risk-transfer tools can play in enhancing the resilience of state budgets.
“A sustainable wildfire management strategy would anticipate growing suppression costs and ensure that financial instruments were in place to protect public budgets from disaster-induced shocks,” Celeste Connors, former White House official on climate change and SAIS faculty advisor, says in the statement.
Noting that insufficient public funding available exists to address the scale of the climate change-related challenge, “innovative partnerships and strategies identified in this report are needed to help leverage public resources to reduce risk and improve community resilience,” Connors emphasizes.
SAIS students collaborated with Swiss Re to examine strategies to help governments better manage financial risk from severe wildfire seasons. This is the second in a series of collaborations between Swiss Re and SAIS focusing on catastrophic risks and policy strategies.
The joint statement notes that California is currently enduring one of the worst fire seasons in the state’s history.
In a statement Thursday, CoreLogic reports its data shows that more than 20,000 homes are at risk from the California Valley Wildfire. A total of 20,429 homes with a combined reconstruction cost of more than US$7 billion are at risk from the wildfire, indicates the hazard risk analysis performed by CoreLogic, a global property information, analytics and data-enabled services provider.
Of that total, 40% are at “maximum risk” or “moderately high risk” of damage, with a total reconstruction cost of more than US$2.5 billion, while 57% of homes are at “minimal risk” of damage, with a total reconstruction cost of more than US$4 billion, the company reports.
“Even homes designated as low risk should still be prepared since wildfire can easily expand to adjacent properties and cause significant damage even if the property is not considered high risk in its own right,” CoreLogic reports.
“On a national basis, nine of the 10 highest years for amount of acres burned have occurred since 2000, which follows a trend of fewer, but much larger fires occurring,” the company statement adds.
Swiss Re and SAIS report that the complete cost of wildfires – many of which are shouldered by governments, which receive assistance from the U.S. Forest Service (USFS) – includes firefighting and recovery costs, and a number of indirect impacts on watersheds, tourism, property values, tax revenues, public health and the environment. “Over a decade ago, the USFS spent only 13% of its annual budget on suppression, but now spends nearly 50%,” the study states.
The USFS “is on track to spend over 50% of its budget putting out fires,” Swiss Re and SAIS note. The service has exhausted its fire suppression funds in eight of the past 13 years, requiring re-routing of funds for other important programs, including wildfire prevention, something that is called “a non-sustainable process,” the joint statement adds.
“As these extreme fire seasons continue, federal and state governments alike are approaching a threshold for accommodating continued increases in costs under current funding structures,” it notes. The six most extreme wildfire seasons since 1960 have all occurred within the last 15 years, with the average cost of extinguishing wildfires over that period more than tripled for the USFS.
Severe wildfire seasons are increasingly being driven by fuel build-up from current fire management strategies, changing climate factors such as extended drought conditions and higher temperatures, and an increase in housing development in the Wildland Urban Interface (WUI). “The United States is not the only country facing this challenge – Australia and Canada share similar challenges in confronting higher than average temperatures, extended fire seasons, and escalating wildfire risk,” the research adds.
“Building suppression capacity alone cannot be substituted for creating a sustainable wildfire management strategy. In order to adequately manage wildfire risk, governments must more fully engage to reduce risk where possible, accept and plan for the changing levels of risk they are facing, and transfer risk that is too extreme or volatile to accept,” the study emphasizes.
A sustainable wildfire management strategy would do the following:
“This study argues that by taking a more holistic approach, governments can reduce volatility in annual budgets and better allocate funding for long-term mitigation, land-use planning, and community preparedness,” it states.
“Although financing natural disasters through private insurance markets remains a frontier arena, western states have demonstrated leadership in proactively addressing climate change and now have the opportunity to redefine wildfire resiliency,” the study adds.