New Casualty Actuarial Society Research Helps Communities Understand Insurance Impact of Wildfire Mitigation
Arlington, Va. – October 25, 2022 A new Casualty Actuarial Society (CAS) Research Paper provides the first detailed road map for understanding and quantifying the impact of wildfire mitigation on homeowners insurance premiums. Catastrophe Models for Wildfire Mitigation: Quantifying Credits and Benefits to Homeowners and Communities explores the need for catastrophe models to perform the quantification of mitigation efforts, outlines actuarial considerations and approaches for developing wildfire mitigation premium credits, and describes challenges in obtaining data and implementing mitigation premium credits. The paper illustrates these concepts through a detailed case study based on a specific community representing a significant concentration of wildfire risk in Northern California.
Unprecedented costs from wildfires in the American West have spurred a need for wildfire risk reduction in at-risk areas; meanwhile, communities and homeowners need tools to understand the costs and benefits of various means of wildfire risk mitigation. Appropriate quantification of the impacts of various mitigation efforts (such as mitigation premium credits) can benefit both insurers and consumers, as well as inform public policy and public safety decisions.
The CAS Research Paper is intended as a blueprint to better understand the cost-benefit of mitigation premium credits and provides a methodology that stakeholders can construct to reduce the risk of wildfire.
“Wildfires are having a profound impact on communities, and Casualty Actuarial Society members have the insurance and risk expertise to help quantify mitigation efforts,” said CAS President Kathy Antonello, FCAS. “Catastrophe models are a valuable tool to understand the interplay between different mitigation efforts and the cost-benefit of making these changes. Expertise from actuaries is key to understanding the results of these models.”
Dave Winnacker, Fire Chief of the Moraga-Orinda Fire District, California, said the study “represents an important step forward and provides a framework to value, and thus encourage, community-wide adoption of proven defensible space- and home-hardening mitigations that matter.”
The CAS commissioned Milliman, Inc. and CoreLogic to produce the research paper.
“With California now enforcing new insurance pricing regulations, it’s more important than ever to understand and quantify the key variables that affect wildfire risk and how they relate to homeowner policy premiums,” said Nancy Watkins, FCAS, a principal at Milliman and co-author of the report.
While the study is intended as a blueprint and presents illustrative results only, wildfire risk and mitigation remains a complex topic that needs to be understood, communicated and addressed by a variety of stakeholders including actuaries, catastrophe modelers, community leaders and fire experts, and policymakers.
The Casualty Actuarial Society (CAS) is a leading international organization for credentialing and professional education. Founded in 1914, the CAS is the world’s only actuarial organization focused exclusively on property and casualty risks and serves over 9,500 members worldwide. CAS members are sought after globally for their insights and ability to apply analytics to solve insurance and risk management problems.