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The growing number of people living in areas where urban development meets wildlands and rising insured losses from wildfires have led to increased awareness and focus on risk management, industry experts say.
“This is about risk management, it’s not necessarily about modeling,” said Kaj Ahlmann, former CEO of General Electric Co.’s Employers Reinsurance Corp. division and co-owner of the 4,300-acre Six Sigma Ranch and Vineyards in Lake County, California.
Managing the risks on a ranch that is five times the size of New York City’s Central Park is a “massive task,” but natural processes such as having cattle graze on the land can prevent wildfires, he said.
“You can’t stop a hurricane, but you can stop the wildfire if you take care of the land,” Mr. Ahlmann said.
Insurers are seeing large wildfire losses because “there is 40% more exposure in the dangerous wildland urban interface than there was 25 to 30 years ago,” said Chris Folkman, senior director of product management at Newark, California-based Risk Management Solutions Inc.
“More exposure equals bigger losses,” he said.
Whether the defensible space around the perimeter of a structure is 10 feet or 30 feet out and how much vegetation has been cleared makes a big difference in the probability that a house will ignite, he said.
“These characteristics put a structure at very specific levels of susceptibility to catching fire that are not necessarily considered by other perils,” he said.
Catastrophe modelers and insurers are grappling with how to better quantify and manage the financial impact of wildfire risk following record levels of insured losses from wildfires during the past two years.