Americans are facing one of the most challenging housing markets in years due to high home prices and rising mortgage rates, but those aren't the only issues impacting purchasing decisions. In today's market, more than 75% of home buyers are actively considering natural disaster risks when choosing where to buy as climate change makes floods, mudslides, and increasingly – wildfires a key factor to keep in mind.
Wildfires have become more frequent and intense as climate change dries out the landscape, making it easy for fires to spark and keep burning. Across 2021, 58,733 wildfires burned more than 7.13 million acres of U.S. land, resulting in $70B - $90B in damage.3 People commonly think of Western states like California, where 4.6 million properties are at risk for wildfire exposure. Places like New Mexico and Wyoming are also states where at least 66% of all properties are at moderate risk of fire, and in Arizona and Utah, almost 6 out of 10 properties have substantial wildfire risk.1 Unfortunately, continuing climate change and hotter temperatures also increase the likelihood of fires in areas typically considered more humid or temperate. For example, Florida now sits in 3rd place when it comes to wildfire risk – right behind California and Texas.1
WILDFIRE RISK IMPACTS HOMEOWNERS' COVERAGE
Fire is often the top risk people consider when insuring their home. Typically, the hardest accounts to place are those with risk factors such as wood shake roofs, log construction, higher property values, or those in more remote locations. However, the market is changing, and these days a homeowners policy can be much more difficult to obtain outside those traditionally tough categories. A property owner that could have easily obtained homeowners insurance a few months ago may find the landscape much more difficult now because carriers have begun utilizing wildfire modeling/ mapping to assess homeowners' risk of wildfire. In many cases, underwriting also applies guidelines around wildfire exposures that were previously rare outside Western states. The increased use of wildfire mapping and stricter guidelines is an emerging issue in places like Florida, Tennessee, and Minnesota, and the trend is expected to continue expanding to other non-Western states.
UNDERWRITING CONSIDERATIONS AROUND WILDFIRE
The type of roof on a home, as well as landscaping and flammable structures such as decking located near the house, are a few of the most significant factors that can make it challenging to obtain homeowners coverage in wildfire-prone areas as well as those areas not traditionally considered wildfire states. Underwriters want to see that insureds have utilized less-flammable materials such as composite decking in outdoor entertaining areas, have reduced risk by using drought-tolerant landscaping less likely to burn, and refrained from using wood shake roofing materials. However, in the E&S space, underwriters are paying less attention to individual risk factors or mitigation efforts than to the overall wildfire modeling of the home's location. Even in areas not conventionally known for wildfire, carriers are expected to start more heavily underwriting risks without hydrants within 1000 feet of the structure or those not situated within 5 miles of a fire department.
These underwriting changes reflect the growing wildfire risk many homeowners face and the potential scope of loss when a fire occurs. If a 1% risk of wildfire is applied over 30 years in the same way flood risk is often quantified across the length of a typical mortgage, wildfire risks are only expected to grow over time, especially in areas not currently thought of as wildfire-prone. While fewer homes are at risk of fire than other disasters, like flooding, the potential impact of fire is much more severe. An inch of water inside a home may cause $20K in damage, but if a property is impacted by fire, it's often a case of total destruction, making the scale of damage difficult to grapple with.1
WILDFIRE IS A GROWING RISK IN NEW AREAS
While wildfires are not unfamiliar in places like California or Colorado, as more homes are built in urban/wildland interface areas, and climate change progresses, wildfires are becoming more of an issue in places like Florida, New Jersey, Tennessee, and the Carolinas. Climate change makes drought conditions more common in the Southeast or along parts of the East Coast, which are not typically known for fire risks. While it's true that Eastern fires generally aren't as large as those in the West, denser populations in the East mean thousands of people have the potential to be impacted. It's such an issue of concern that Realtor.com has begun attaching a wildfire risk score to every property listed on the site across the U.S., even those not currently for sale, to educate homeowners and potential buyers. The scores consider property features that would influence the likelihood of burning, such as layout, the proximity of vegetation, building materials used, and type of windows installed.1
It's currently estimated that 16% of the total U.S. population lives in hazardous fire areas, but that percentage will increase to 21% over the next three decades.2 It's anticipated that by 2052 almost half of Americans with significant fire risk – 32 million residents - will actually live in the South.2 With fire risks expected to increase, insureds thinking about building or renovating a home would be wise to consider wildfire exposure when choosing materials to help mitigate fire risks.
HOW AGENTS CAN HELP
Navigating the changing homeowners market can be challenging for insureds who may not yet understand that wildfire is a growing risk in new areas. Agents can help move the process forward more efficiently by submitting the required limits for a particular home rather than including standard limit percentages or attempting to over-insure. This can make all the difference in obtaining coverage. Including information about protective devices such as sprinkler systems, alarm systems, and distance to hydrants or fire services is also helpful when marketing accounts. It's recommended that agents start the renewal process at least 90 days out because it can take additional time to find coverage in the current environment, and some insureds are seeing non-renewals based on updated wildfire modeling.
As the climate warms, fire risks will only grow. The last five years of devastating fire seasons have become the new norm, and over the next few decades, they'll only become more intense. It's getting tougher to write homeowners coverage inside and beyond known wildfire-prone areas. The market is evolving quickly. One day it may be possible to write with multiple carriers, and the next day, it can be challenging to find a viable option for the same risk. Deductibles and limits can vary greatly based on location and property value, but in general, the higher the home's value, the harder it is to obtain coverage. In some instances where lower limits are available, solutions have included self-insuring smaller outbuildings, loss of use, or home contents. Partnering with CRC Group expands agent access to brokers with the E&S expertise needed to market accounts effectively and secure the best possible insurance option in challenging scenarios. Contact your local CRC Group producer to learn more about how we can help your clients protect against growing wildfire risks.
- Allison Talus is the CRC Group Personal Lines Regional Director – Western States and a member of the Personal Lines Practice Advisory Group.
- https://www.cbsnews.com/moneywatch?ftag=CNM-16-10abg0d Wildfires Are a Growing Risk for Homeowners. Here Are the States Most in Danger, CBS News, May 16, 2022.
- https://www.cbsnews.com/news/wildfire-risk-for-homeowners-state-county/ 1 in 6 Americans Live in Areas with Significant Wildfire Risk, The Washington Post, May 17, 2022.
- https://www.washingtonpost.com/climate-environment/interactive/2022/wildfire-risk-map-us/ 2021 North American Wildfire Season, Center for Disaster Philanthropy, January 10, 2022. https://disasterphilanthropy.org/disaster/2021-north-american-wildfire-season/