Underwriting Wildfire Risk

It is not rocket science.

I read an article about a new MGA using “dynamic” modeling software to identify wildfire exposure and proactively make recommendations to mitigate damage potential. That sounds awesome. It’s also an unnecessary expense.

Everyone is so wrapped up in technology that they have forgotten how simple property underwriting really is. I recently wrote an article stating carriers are lazy, and they are. A reader was upset I said this, and went on to say how great predictive modeling is. He did not understand the oxymoronic point he was making. Predictive modeling in property is indicative of laziness. Carriers are using predictive modeling so their underwriters don’t have to think.

The reader continued to emphasize the success of predictive modeling. Predictive modeling, overall, and maybe some models are better, has failed to date with property. If it worked, carriers would have made money over the last five years, the industry would not have a hard market, and the industry would not have experienced such highs and lows. Results would be more consistent and better if predictive modeling worked.

Praying to the god of technology so one does not have to think is lazy.

Another reason for using dynamic modeling, according to the pitch, is how fire exposure changes over time. It does, but it does so slowly. A forest does not grow overnight. Inspections or reviews of updated maps every five years are sufficient and less expensive. Typically, the worst that happens is someone does not mow their grass, and the grass dries out.

The previous point is important for underwriting property the old-fashioned way for two reasons. The first reason is that a number of municipalities and their environmentalist friends prohibit mowing grass on public property, i.e. “rewilding”. They act as if this is all beneficent without a trade-off, but making something look wild in an artificial setting (urban parks looking wild is an artificial setting) has the trade-off of increasing wildfire danger. The homeowner living next to that park cannot do anything to minimize that risk other than to move.

Second, if the homeowner does not mow their lawn because maybe they are lazy, they have a health issue, or they are rewilding their lawn, that is a different issue. They can control it, and a choice can be given. Mow the lawn or lose your insurance.

Quality property underwriting is simple. Either the insured, in personal or commercial lines, has pride of ownership or they do not. If they do not have pride of ownership, the risk increases in both frequency and severity.

For fire exposure, old brush maps are more accurate than what I’m seeing technology companies provide. The technology companies are being paid to identify fire zones with some specificity. The maps they paint look more like what results from a house painter’s brush rather than a fine-tip natural sable brush.

This means carriers are losing opportunities to make a lot of money writing quality accounts because they’re too lazy to think things through. I don’t consider these points opinions but facts based on real-world field work and researching actual carrier financial filings.

Again, this is not rocket science. Plenty of data, simple instructions, and guides have all been published showing how to mitigate wildfire exposures at the homeowner level. Clear combustibles, get rid of wood fences, take steps to minimize the combustibility of the house itself, and so forth. Most of the recommendations involve labor and not a lot of money for most people.

If the area itself is just too risky, what else can the insured do? Years ago, I executed a fire risk management program for homes in PC 10s. It worked like a charm because I was willing to think.

However, there may be something else going on that carriers don’t really want to discuss, adding to the problem. They may not have enough surplus to write so much property, so they use a broad brush to paint huge areas as wildfire risks when it is not accurate. When you wonder if carriers are really in the insurance business, as in, “Do they really want to insure anything?”, a good probability exists they have run out of operational surplus. Their TIVs got out of control, and they don’t want anyone to know it. And wildfire is an excellent excuse to get people to look in the wrong direction.

The California fires were awful. The state DOI has been adding fuel to the fire for years, as have their environmentalists, by focusing on things other than human life. But insurance can be a godsend when done well. I hope new markets develop that are willing to think through wildfire risk, that stop depending on technology to think for them, and that provide a solution to homeowners exhibiting a high level of pride of ownership. Let’s help those who help themselves rather than writing off homeowners' insurance entirely.

---

NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.