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Growing wildfire threats may force new public-sector funding strategies

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Governmental entities must develop financial resiliency to wildfires, and innovative public-private insurance programs could be part of that solution, according to a study released Thursday by Swiss Re Ltd. and Johns Hopkins University’s School of Advanced International Studies.

“Fueling Resilience: Climate and Wildfire Risk in the United States,” a collaboration between Swiss Re and students from the school, aims to help the U.S. manage financial risk from severe wildfire seasons by looking into ways wildfire suppression efforts are publicly financed and how risk-transfer methods could improve the resilience of state budgets.

The study also looks into how government entities are responding to climate change. Currently, most U.S. states lack a sustainable financial strategy to respond to the changing climate landscape, the study says.

The six most extreme wildfire seasons since 1960 occurred in the past 15 years, and the average cost of extinguishing wildfires in that time has more than tripled for the U.S. Forest Service, according to the study. Over a decade ago, the USFS spent only 13% of its annual budget on wildfires, but it now spends nearly 50%, according to the report.

The West Coast is being hit the hardest, with California enduring one of the worst fire seasons in the state’s history, and the U.S. Forest Service about to spend over 50% of its budget putting out those fires.

Relief from traditional insurance has proven insufficient, according to the study, and as these extreme fire seasons continue, federal and state governments can’t afford the costs under current funding structures. Oregon, for example, has maxed out its catastrophic wildfire insurance in the past two years.

Transferring risk from catastrophic wildfires to the private market through innovative financing could improve risk management for the states, according to the report. This could include setting up new multistate risk pooling facilities that leverage existing state insurance budgets, such as designing a risk pool between states in the Pacific Northwest — Oregon and Washington — and British Columbia.

“Although financing natural disasters through private insurance markets remains a frontier arena, the western states of the U.S. have demonstrated leadership in proactively addressing climate change and now have the opportunity to redefine wildfire resiliency,” said Alex Kaplan, senior client manager with Swiss Re Global Partnerships, in a statement.