Wildfire's rising risks and expected losses

Mark Maroon:
Hey, everyone. Welcome to Climate Check. This is Mark Maroon, Vice President and Head of Portfolio Management and Reinsurance at American Modern, a Munich Re company. Today I am joined by Tobias Grimm, Head of Climate Advisory and Natural Catastrophe Data at Munich Re. Thank you so much for joining us today.

Tobias Grimm:
Thanks for having me, Mark.

Mark Maroon:
Absolutely. So maybe just to begin, can you give us a little bit of an overview of your role here at Munich Re?

Tobias Grimm:
Sure. So I'm Tobias Grimm. I'm a geographer by profession, and I studied geography and meteorology some 25 years ago, and I'm with Munich Re already for 20 years. At the moment, I'm in a function where I'm overseeing all climate advisory and natural catastrophe-related activities with Munich Re. So we are a center of competence on climate change here.

Mark Maroon:
Very good. I appreciate that. So, I think we want to talk a little bit about wildfires today. So here in North America, and certainly in Europe as well, it feels like we're already in wildfire season, as it seemingly begins earlier and earlier every year. Australian bushfires become an increasing problem, although the season hits in different regions at different times of the year for our friends in the Southern Hemisphere. But do you see similar patterns holding from your perspective?

Tobias Grimm:
Well, wildfires in general have become a really relevant subject for us in the insurance industry. The wildfire hazard has become really high in particular climate zones. So, whenever we do have enough rainfall, that vegetation is allowed to flourish for some of the year. But also, some long periods of warm weather do occur with only a little precipitation. Under these conditions, plants gradually dry out and become highly flammable, and this type of climate is found, for instance, in California or also in Southeast Australia. There are some preconditions required for the development of wildfires, including high temperatures, high evapotranspiration, a higher water vapor deficit in the atmosphere, and, at the end, the drying out of vegetation and long dry periods. And then there are some specific preconditions, such as dry fuels, like leaf litter or other organic debris. And you always need, of course, an ignition source, and the ignition is mostly human; so about 95% of all wildfires are created by humans.

Then the speed at which fire spreads and the intensity at which fire burns depend on the wind speed and, of course, also the ambient temperature. The higher the temperatures are, the faster wildfires can spread. And here we talk also about climate change. We do have a world that is changing; mean temperatures are going up, and with these mean changes come along also changes in weather patterns. The seasons are lengthening. So, we do have an earlier vegetation start and earlier snow melts. We have more persistent weather patterns that are leading to longer dry spells and extreme temperatures, and that all leads to a higher likelihood for wildfires to unfold. They’re happening more often, starting earlier, and lasting longer.

And I think it’s fair to say that wildfire is one of the most obvious perils where climate change has an impact already with respect to both frequency and intensity. And this is also proven by attribution science. So, there are attribution studies that try to link single extreme weather events with climate change. And it has been done, for instance, in the Australian Black Summer 2019–20, where it has been found that this type of bushfire event, which was a massive fire summer some four years ago, has become four times more likely compared to pre-industrial times.

Mark Maroon:
So that sounds like a lot of bad news, if I’m being completely honest. But I did want to dive into one of the things that you had briefly mentioned around attribution studies. Can you maybe give everybody a little bit of an overview of what that means and whether or not that’s maybe a little bit more reliable for tracking climate change patterns for something like wildfire versus what you might see for a hurricane or severe convective storm?

Tobias Grimm:
Yes, absolutely. With attribution science, there is an attempt to compare a single extreme weather event with a weather event that has happened in an era without climate change. So, you do remodel the particular atmospheric conditions with today and the actual conditions with a world where climate change hasn’t happened yet. So with the pre-industrial times at the end, and then you just compare the likelihood. It’s a matter of likelihood mostly, and with wildfire, it has been proven that, for instance, the Australian Black Summer in 2019–20 has become four times more likely compared to the pre-industrial times.

Mark Maroon:
And you’d also mentioned a lot of different factors that have seemingly increased the potential for frequency and severity for some of these fires in some of these different regions. Is it fair to assume that losses have followed a similar trend as well?

Tobias Grimm:
Absolutely. So wildfires can result, of course, in loss of life as well as infrastructure damage, but also in property damage and economic losses. In regions that are especially at risk, we see more and more so-called step changes in our loss data. For reference, Munich Re has been collecting these kinds of loss data on national catastrophes for nearly 50 years now. And we have clearly noticed that, for instance, in the US, but also in Canada and then Australia, new orders of magnitude have been reached with respect to wildfire losses. In the US, for instance, we have always seen an area of magnitude depending on the given year of 1 to 3 billion US dollars per year. Now we have the $10 billion mark that has been exceeded a couple of times already. So that’s now the new normal. Why is it the case? Why do we see such a steep increase with respect to losses from wildfires?

Well, first and foremost, there is just more area that is burning as a consequence of climate change. Acres burned have increased globally by a factor of about two or so over the last 20 years. Globally, the world is getting hotter and the weather is often just more conducive to the development of wildfires. Other factors include population growth, and people tend to move and settle into these so-called wildland urban interfaces. So, whenever the cities meet the environment, there’s, of course, a higher risk; that’s a bit similar to floods or cyclones. When people move into regions that are close to a river or close to the sea, of course, they’re also heavily exposed here.

Mark Maroon:
So then with the increases in economic costs that you’ve mentioned, are we seeing a proportional increase in insured losses as well?

Tobias Grimm:
It depends on the regions. So, we do see this increase in particular in the US, but also in California. But the area that has been affected by wildfire does not necessarily correlate with the number of losses. The number of losses and the amount of losses are just subject to the regions affected. Sometimes there is a lot of wildland affected, and the losses are low, and the insurance portion, of course, is on the rise as well — at least in the highly developed markets of the world.

Mark Maroon:
So, in the underdeveloped markets of the world, then, are you seeing a protection gap that we might be able to step in and help cover?

Tobias Grimm:
There is a protection gap, absolutely. Globally, we are seeing, I would say, some 40% to 50% of all wildfire losses that are not insured. It is highest in regions such as Africa, Southern Europe, and South America, where these markets hardly have insurance protections against wildfires. On the other side, we have the well-developed markets, including the US, Canada, and also Australia, which have a protection gap, depending on the year and on the area that is affected, of some 30%. It has improved. So, we started some 20 to 30 years ago with a protection gap of some 40% to 50%, and it has now been reduced. So, the insurance industry has contributed a little bit to closing the protection gap.

Mark Maroon:
Okay. Yeah, unfortunately, it seems like the best marketing for insurance tends to be an event, and once people go through it or see their neighbors or a town up north or something, they think, “Oh yeah, maybe this is something that we should take a look at covering.” So I guess I would maybe want to circle back to the science piece of this just a little bit. I’m putting on my nerd hat here. You discussed a lot of these different factors that are going to be increasing the antecedent conditions for wildfire ignition and spread. So, is there anything that we can do to offset some of that?

Tobias Grimm:
Well, limiting wildfire damage always involves a blend of preparation, prevention, and, let’s say, proactive land and community management. Firefighting is a big issue. So adequate staffing has become a huge challenge, in particular in the US, with lots of firefighters having left their jobs. So that remains a big topic there. In the end, I think it’s a shared responsibility between the communities, the government, and also the insurance industry to help overcome the protection gap and offset the intensified frequency and duration of wildfires. There are different groups that need to be educated on that. Education is very important. We need to provide them with meaningful education and show adaptation pathways and sustainable mitigation practices.

Mark Maroon:
What have been some of the most effective adaptations that communities can put in place to minimize some damage?

Tobias Grimm:
There are different levels to be considered, both on the community side and also on the property side. As mentioned, community education on wildfire is very crucial because it empowers the residents with knowledge on creating defensible spaces and adopting best practices for home protection. Often, there are buffer zones to contain the spread of fire, and enforcing these zoning regulations is also important. In Australia, there are these kinds of back burning and fuel reduction burnings in place. It is an old technique by the Aborigines that is implemented regularly. What it means is that it’s a technique where the fire is deliberately initiated to fight fire with fire. While back burning is more of a last resort to stop wildfires from burning out specific areas, fuel reduction burning is used to control fire behavior by removing fine surface fuels such as leaf litter.

Reducing these hazards increases the chances for the firefighters to control bushfires in Australia, and that’s a technique that has been implemented pretty successfully. At best, the backfire can completely prevent the fire from spreading. But at the same time, there’s also a side risk: that smoke pollution, of course, can fumigate nearby communities in these regions. Building codes are, of course, also very important. Portugal, for instance, implemented a comprehensive strategy, including fuel breaks and buffer zone creation. So, this is something like mandatory buffer zones, where people cannot and must not develop into regions that are very exposed. That is the so-called wildland urban interface areas that I mentioned already.

Mark Maroon:
So it doesn’t sound like all is lost then. There are certainly some techniques that we have at our disposal to try to counteract some of this increasing wildfire behavior that we’ve seen. So, if I ask you to put on your meteorology hat for a minute, what do you think the forecast is looking like for this year’s fire and bushfire season around the world?

Tobias Grimm:
So we have seen already some wildfires, in particular in the US, in Texas in early spring. Last year, Canada was in the spotlight with a new record with respect to the amount of hectares of forest that had burned, more than ever before. Hawaii, of course, also experienced a very devastating wildfire there. And it seems that the preconditions for the development of further wildfires during the year 2024 are pretty good, actually. There is Southern Europe that is, of course, always subject to wildfires, where the temperatures are already, in parts of Southern Europe, pretty high. In Australia, we have different seasons. We are heading into the main season in Northern Australia. At the moment, it’s winter there, and that’s where El Niño and La Niña play a major role. So the natural climate oscillation there. And it seems that we are heading toward La Niña for the next summer in Australia, and that means a reduced bushfire risk there.

Canada has been, as mentioned, a pretty active year to date. It does look like Canada is experiencing a pretty slow start to the season. In the US, the precondition is, I would say, pretty good that wildfires will develop as the summer and the fall evolve and continue. We have pretty dry soils in many of the regions, so low precipitation levels were mostly in across the contiguous US over the last couple of weeks and months. Temperatures were above normal in many parts, in particular in the southwest of the US. The fire potential is definitely there. Please bear in mind the hazardous air quality that comes with wildfires, sometimes also reaching far distant regions, such as last year in New York. We all know the pictures still when the Canadian wildfires had just blanketed the US in a haze and turned the sky into yellowish-gray colors. So these preconditions are present this year as well. We have a heatwave; we have very warm and dry conditions. So let's see how that all turns out over the next couple of weeks and months.

Mark Maroon:
Yeah, I’ll be curious to see how it plays out, certainly. I remember seeing all those photos of Yankee Stadium looking like something straight out of a horror film. So, folks, you heard it from Tobias himself; we’ll see how this goes. Thank you so much for joining us today, Tobias. It was really great having you on.

Tobias Grimm:
It was a pleasure. Thank you.

Mark Maroon:
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