The primary function of insurance is to protect people and property.
It seems intuitive. But recently, I’ve felt that roadblocks to industry progress have become more frequent and disruptive. Across the country, elected officials, and the public policymakers appointed by them, wield significant power and leverage which can be used to either help or hinder the efforts of the insurance industry to accurately convey relative risk and vulnerability to policyholders.
As I was doing my usual scan of news outlets the other day, a few pieces about wildfire rolled across my screen.
One article covered legislative activity in Oregon to prohibit insurers’ use of wildfire risk maps for underwriting-related activity. Another article discussed how Washington State officials are working to improve public perception of prescribed fires to reduce fuel load in the wildland-urban interface (WUI). Both pieces led me to this blog piece in which I’d like to explore specific examples of how policymakers can either undermine or bolster the proper, critical function of our industry when it comes to dealing with the natural hazards of fire and water.
Before jumping in, please allow me to introduce myself.
My background
While I’ve been a proud member of the WSRB and BuildingMetrix Boards of Directors for the last few years, my connection to WSRB goes back decades. Because I managed communications and research efforts focused on both residential and commercial lines for numerous industry trade associations, I worked very closely with individual company lobbyists and communications staff, as well as industry-supported organizations in every state and at the federal level.
Most recently, for 12 years prior retiring in mid-2018, I was President and CEO of the Insurance Institute for Business and Home Safety (IBHS). IBHS is a non-profit research organization supported entirely by the property insurance industry.1
At the unique, world-class Research Center in South Carolina, IBHS engineers and meteorologists conduct rigorous, meticulous building science. This building science is focused on how to effectively reduce or prevent property damage from natural hazards, including wind, wind-driven rain, hail, and – most relevant to Washington and WSRB – wildfire. The industry has tasked IBHS with going wherever the science leads to find out what works, and what definitely does NOT work. IBHS then provides data and guidance to our own industry, as well as to our policyholders, company/industry allies, and public policymakers.
Currently, I live in New Mexico, which at first glance, may not seem to have a lot in common (from an environmental perspective) with Washington State. After all, New Mexico is the 5th driest state in the U.S., with average annual precipitation of less than 14 inches and Washington averages more than 38 inches per year.2 However, one big thing New Mexico and Washington have in common is wildfire risk.
Which brings us back to the wildland fire-related articles I was reading earlier today. Here's the thing: insurers need and should be able to utilize modeling tools to properly evaluate relative risk for wildfire; and prescribed burns are controversial for very good reasons. Let’s take these topics one at a time.
Risk modeling
While no risk model is perfect, and various models can and do produce different and sometimes conflicting outputs, it is important that they be used, and allowed to iterate and be refined, to enhance underwriting accuracy and utility. Regulators may not like how models cause consternation among policyholders whose homes or commercial structures get classified by those models as relatively high risk, but blanket prohibitions of insurer model use deprive constituents of data and information that represents their true risk. This causes a distortion of the insurance marketplace, treating all properties as equally vulnerable when each is unique. Dishonest presentation of risk causes unwarranted complacency among property owners and a misalignment of real risk to insurance availability and pricing.
A similar dynamic has long been present regarding another hazard of interest to WSRB and BuildingMetrix: flood. Again, policymakers at the national, state, and local levels intervene to keep science-based modeling and risk assessments away from those who can use them to send market signals of relative vulnerability to property owners.
And the policymakers’ reason for intervention? To placate constituents who don’t like being told that their homes and businesses are in real danger of being overcome by flood waters – even when that is the plain and simple truth.
Those same policymakers often lash out at individual insurance companies that don’t want potential catastrophic loss and/or repetitive loss properties on their books, because they can’t underwrite and price them accurately. It is a story that repeats every time new flood maps and models are released. It shouldn’t be a surprise that wildfire maps and models too are being attacked and shelved.
All this is disappointing, and my hope is that carriers fight alongside modelers and other vendors to regain and retain the right to use these important tools. We need policymakers to give science and data a real chance to do their intended jobs in the insurance marketplace. We need policymakers to learn and value risk models and maps that plainly show where people and property are at heightened risk, for the sake of those people and properties, and for the wider impact that fire, flood and other hazards have on local and regional economies.
Prescribed burns
Here in New Mexico, the USDA Forest Service lit a prescribed pile burn in February 2022. Because it was not properly extinguished, it flared up a couple of months later, eventually merging with another, run-away prescribed burn to catastrophic results. The combined Calf Canyon-Hermits Peak fire was the largest, most devastating wildfire in New Mexico history, burning 341,471 acres from early April through late June 2022.3 The fire destroyed more than 900 structures, including several hundred homes, while threatening more than 12,000 other structures in the region.
Since the Calf Canyon-Hermits Peak fire, people in the WUI have rightly feared prescribed burns anywhere near their property or town. Last month, the New Mexico state legislature went so far as to enact a law prohibiting prescribed burns on “red flag” warning days. These are days when the mix of warmer temperatures, low humidity, and strong winds create a dangerous cocktail that substantially increases fire risk. The Forest Service also has enacted new national rules governing their use of prescribed burns.
Related:
Preventing Fire With Fire
Out of this Calf Canyon-Hermits Peak tragedy came lessons learned and activated in the real world in ways that could prevent the devasting recurrence of a similar fire. Overall, it’s been a much better outcome than we see on the risk modeling and mapping front. However, it is important to note that actual practices by the Forest Service and in NM have changed in crucial ways; this is more than just polishing the image of prescribed burns. If Washington State really wants a warmer reception to such burns, it will have to convince skeptical property owners through actions, rather than words. There is an opportunity here to take proper care of our beloved forests without needlessly and recklessly creating greater fire risk to homes and businesses in the WUI.
The future
Our industry has an obligation to be honest about how and why we perceive differentiation of risk. Because I’ve been a part of these efforts, I know that our industry has stepped up and undertaken scientific inquiries for public health and safety that otherwise simply would not have occurred. This work has greatly benefitted policyholders and communities, in addition to helping our bottom lines.
WSRB, BuildingMetrix, and other organizations will continue providing new, innovative tools for carriers. WSRB is staffed by impressive, highly competent staff who are laser-focused every day on providing real, tangible value to subscribers. And they succeed, developing products and services that deliver precisely what subscribers and customers need.
My ongoing hope is that outreach, education, and advocacy by insurers will help the rest of the property-casualty insurance ecosystem, including public policymakers, see things through our expanded and informed lenses. Then, we’ll be able to utilize everything in our toolboxes to protect lives and property and help reduce or eliminate fire and flood risk. That outcome would benefit everyone.
[1] IBHS, https://ibhs.org/about-ibhs/ibhs-research-center/
[2] A-Z Animals, https://a-z-animals.com/blog/these-are-the-10-driest-states-in-the-us-and-droughts-are-coming/
[3] ArcGIS StoryMaps, https://storymaps.arcgis.com/stories/d48e2171175f4aa4b5613c2d11875653
