The U.S. Burns Less in 2023

Despite headline-making wildfires throughout 2023, including record-breaking events across the Northern Hemisphere, in the U.S., wildfire frequency and severity are currently on track to be the lowest in the past 20 years, according to a report by the Insurance Information Institute (Triple I). Still, persisting climate conditions that favor the spread of wildfires combined with developed-land trends mean the risks for the insurance industry remain high.

Wildfire Trends

Even states where wildfires typically occur most frequently are experiencing mild fire seasons this year, according to the report, “Wildfires: State of the Risk.” For instance, California is having its third mild fire season in a row in 2023, perhaps “due to drought-breaking rains and snows.” However, Texas, despite worsening drought conditions, is also experiencing fewer wildfires so far in 2023 compared to 2022. The U.S. Drought Monitor reported that 37% of the continental U.S. is under “some form of drought,” making the downward trend in wildfires all the more surprising.

The Triple I report references the 2022 “Annual Report of Wildfires” produced by the National Interagency Fire Center (NIFC), which states that 68,988 wildfires were reported, and 7.5 million acres burned in 2022. Of these fires, 89% were caused by humans and burned 55 acres per fire; however, the 11% of fires caused by lightning resulted in an average of 563 acres burned, making them much more destructive overall. “This difference may shed light on why the number of fires has been decreasing more dramatically than acres burned,” states the report.

To that point, the report cites National Center for Environmental Information statistics on wildfires occurring from January through September for the years 2000-2023. The statistics show a relatively steady trend of decreasing wildfire frequency from 2006 to 2023 in those months. However, the trend for acres burned over that period is far less uniform, with more dramatic spikes and dips from year-to-year.

The Reasons Behind the Recent Decline

“The improvements in frequency and severity are likely due to investments in mitigation,” according to Triple I. “State and local authorities have worked hard and invested a lot of money to mitigate the human causes of wildfire. The Insurance Institute for Business and Home Safety (IBHS), which provides science-based wildfire research, in 2022 launched the Wildfire Prepared Home designation program to help homeowners protect their property from wildfire.”

Furthermore, the report mentions the impact of the federal Infrastructure Investment and Jobs Act of 2021, signed into law by President Joe Biden, which includes “$600 million to convert seasonal federal wildland firefighters to permanent year-round positions and increase pay for federal firefighters by up to $20,000 per year; $3.3 billion for critical wildfire risk-reduction efforts; $5 billion for utilities and grid operators to bury power lines and install fire-resistant technologies to prevent wildfires, as well as expand use of micro-grids to reduce the impact of power shutoffs; and $3.5 billion for the weatherization assistance program to help homeowners make energy-efficient and fire-resistance improvements to their homes.”

What It All Means for Insurance and Risk

Illustrating the risk that wildfires pose to the insurance industry, the Triple I report cites Swiss Re and notes that the share of natural catastrophe insured losses due to wildfires has doubled over the past 30 years. “This reflects the impact of a growing number of people living in the wildland-urban interface (WUI)—the zone of transition between unoccupied and developed land, where structures and human activity intermingle with wildland and vegetative fuels.”

Responding to CLM about what the 2023 U.S. reduction in frequency and severity means with respect to risk and potential claims, Dale Porfilio, FCAS, MAAA, chief insurance officer, Triple I, says, “Triple I is pleased to report that mitigation efforts are reducing the frequency and severity of human-caused U.S. wildfires. However, this does not alleviate overall wildfire risk when the Earth is experiencing record high average temperatures and more than 46 million homes worth an estimated $1.3 trillion have been built in the WUI.”

As a result, insurance premiums remain high, according to CLM member Steven R. Disharoon, managing partner of Wood Smith Henning & Berman LLP’s Sonoma County office, who wrote the wildfire feature, “Taming the Flames” for the November 2023 edition of CLM Magazine. “Insurance premiums are reactive to market forces and changes in risk,” Disharoon explains when reached for comment on the Triple I report. “For example, when a new increased frequency in fires occurs, it usually takes a year or two for insurance companies to adjust when policies come up for renewal, at which times policies are either not renewed or renewed at higher premiums.” However, he continued, “The reverse is also true: it will just take time for insurance premiums to adjust to decreases in fire frequency and severity.”

California Trends and Responses

“California historically has accounted for about 10.5% of U.S. acres burned. That amount has grown to approach 40% in recent fire seasons, but in 2022, California represented 4.5% of acres burned—an all-time low,” the Triple I report states. Since 2012, northern California saw 224 acres burned per fire, which has increased to 353 acres per fire since 2017. However, in southern California, an average of 83 acres burned per year through 2017, and that increased minimally to 98 acres per year.

The report opines, “This divergence may reflect the fact that northern California has more WUI development than the southern part of the state…. WUI fires tend to ignite naturally and burn longer and more extensively. The more densely populated southern area likely experiences fewer fires of this type and more that are human caused. These don’t tend to burn as long or as far and are becoming fewer in number.”

Disharoon agrees with the report’s hypothesis, and adds, “Northern California tends to have more extensive forested areas, which can be more prone to wildfires during dry conditions, high levels of vegetation density, and natural fire cycles. These areas often have significant levels of WUI, where residential and commercial structures are built close to or even within identified wildland areas. This proximity increases the risk of wildfires spreading to populated areas, and often contributes to the frequency and impact of fires.”

Southern California, on the other hand, according to Disharoon, “has a different landscape, with a lower [number] of forested areas adjacent to developed areas. While significant areas of WUI exist in southern California, the patterns and density differ from northern California. Southern California's wildfire challenges come more from factors such as the Santa Ana winds, human fault, electricity infrastructure, lightning strikes, and vegetation overgrowth. WUI development plays a role in wildfire frequency but may prove less of a determining factor than is present in northern California.”

Disharoon explains that, in the context of California specifically, “The advances in computer modeling, and more modern understanding of the interplay of wildfires and WUI, suggest that revisions to California’s Proposition 103 may be warranted. Passed by voters in 1988, the law has done great things for consumers to drive down premiums and encourage public participation in the setting of insurance rates.

“However,” he continues, “the law’s requirement that historical data be the driving force of rate setting appears outdated. As recent trends and data indicate, assessing wildfire risk is far more nuanced and complex than this. Public protection from unreasonable rate increases can be maintained while allowing insurers to factor in broader assessments of risk when underwriting property insurance policies. This, in turn, will allow greater public discussion of these broader concepts—including the risks of developing into the WUI.”

He suggests that “insurers could develop programs for premium discounts for fire mitigation efforts undertaken by developers and property owners. In other words, it could be a win for all in California to rethink its decades-old approach to setting insurance rates.”