American home insurers updating underwriting criteria for wildfire risk: Munich Re

The Valley Fire in Northern California could become the largest wildfire loss event in the area in 24 years, as primary insurers are changing the criteria they use to underwrite home property wildfire losses, Munich Reinsurance America Inc. suggested Wednesday.

“As of this morning, the Valley and Butte fires in Northern California have destroyed over 1,000 structures,” stated Mark Bove, senior research meteorologist for Munich Reinsurance America, in a statement e-mailed to media by a Munich Re’s spokesperson.

“Although it is too early to provide any current loss estimates, the Valley Fire could become the largest wildfire loss event in Northern California since the Oakland firestorm in 1991,” Bove added. “That event destroyed about 3,200 buildings with an industry-wide insured loss of about (US) $3 billion.” [Click image below to enlarge]

Homeowners and fire insurance policy wordings have “not changed materially” over the past 10 years, but the underwriting criteria have, stated Jim Larkin, senior vice president, property underwriting, Munich Reinsurance America.

Primary insurers “have been using mapping tools to manage and visualize wildfire and other exposures,” to determine whether they will provide coverage and if so at what price, Larkin added.

“Such factors as fuel conditions on the property, proximity of trees on the property, roof type, construction type, terrain, slope, risk of Santa Ana wind events as well as other criteria can contribute to determining a property’s vulnerability for wildfire.”

Munich Re America reported some insurers retain third-party firms “to essentially act” as private fire departments for high value homes.

“These insurance companies, when monitoring and tracking a wildfire, will dispense the third party companies to the threatened home to clear brush away, and if appropriate, spray down the house with a fire retardant provided the homeowner is willing to sign a statement authorizing these loss mitigation efforts.”