WUIs to Watch: Understanding Evolving Insurance Risk in the Wildland Urban Interface

The 6th IPCC Assessment Report showed that climate change is increasing the frequency and intensity of weather conditions that are conducive to intense wildfires in the United States. Simultaneously, expanding development in the Wildland Urban Interface (WUI), the transition zone between wilderness and land developed by human activity, across the Western United States has increased insurer exposure to wildfire threats. This combination of changes in climate and population patterns has put pressure on the insurance industry, necessitating the development of increasingly granular wildfire risk products for vulnerable communities.

Guy Carpenter has developed a present-day Wildfire Risk Score and a climate change risk score, to quantify how different emissions pathways could modify future wildfires and resulting insured losses. To create the climate change risk scores, weather parameters obtained from downscaled climate simulations are used to construct projections of Fire Weather Index (FWI) for an ensemble of models under multiple emissions scenarios. Observed relationships between FWI, burn area, and insured loss values are used to translate FWI to insured losses for the climate model simulations. Preliminary results have shown that the western United States is projected to log the largest increases in wildfire risk which agrees well with the recent observed trends.

In conjunction with the climate adjusted wildfire risk scores, Guy Carpenter has developed an Area of Concern (AOC) tool to capture the areas of the country that have both high wildfire risk today and are projected to have the largest wildfire weather changes due to a warming climate. With a resolution of 30 meters, the AOC maps can resolve the abrupt changes in wildfire risk that are characteristic of the WUI. Intersecting the AOC maps with insurance companies’ portfolios provides unique insights that can inform growth and accumulation reduction strategies while also supporting the development of sustainable insurance practices across the country.