How homeowners can reduce wildfire risk: Pt. 1 & 2

Part 1:

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, we're joined by a very special guest, Alister Watt, Chief Product Officer at the Insurance Institute for Business and Home Safety. Alister, thanks so much for joining us today.

Alister Watt:

Thank you, Mark. It's a pleasure to be here.

Mark Maroon:

So could you start off by telling us a little bit about the focus of IBHS?

Alister Watt:

Sure. So IBHS is an independent, not-for-profit scientific research organization. We aim to deliver top-tier science, which is meticulous science; it takes a long time to develop and to prove out. And then we translate that into actionable guidance for homeowners, for business owners, for insurance carriers, and various other people that are in our ecosystem.

Mark Maroon:

That's great. So, do you specialize in specific types of perils, or what do you really try to focus on?

Alister Watt:

Yeah, so we have this research center in Richburg, South Carolina. It's on a 99 acre site. We have a one-of-a-kind wind tunnel where we have 105 fans, each of which can produce a tremendous amount of power, recreate category three-type storms. So that's the wind side. We add rain to that, we add hail to that, and we can also do wildfire. So those are the main perils that we study at IBHS.

And we partner with some of our member companies in terms of distributing some of that research, some of the products, partly for their own use and for use of their customers. And we're proud that Munich Re has been a member of IBHS now for 28 years, one of the founding partners of IBHS and has helped shape the organization over the years through the board of directors, through the executive committee, through the research advisory council, and the commercial lines committee.

Mark Maroon:

Yeah, we definitely appreciate having the long-standing partnership with IBHS as we really believe in the science and the vision and the overall mission. So, you had mentioned a couple of specific things around giant wind tunnels. I've heard rumors of ember cannons as well. So, A: what does one have to do to be able to come and actually fire off those ember cannons? And, B: how do you use them to maybe take a look at testing homes specifically that could be vulnerable to wildfire?

Alister Watt:

Yeah, so we call them ember generators, which is a pretty fancy name for creating flying objects that are on fire. There is a tremendous amount of fluid dynamics that goes into how embers move through the air based on wind, based on obstacles, and suchlike. So we study what is the effect of embers hitting structures; different types of structures, different types of materials, some of which are more combustible than others. And we have accidentally burned houses, probably more houses than we should have. As we learn, we often find vulnerabilities that we weren't aware of from the front end. And so we learn by accident sometimes, and sometimes we do it intentionally, but either way we learn and build up that body of science.

Mark Maroon:

I like that. Bob Ross, happy little accidents from time to time, right?

Alister Watt:

There you go.

Mark Maroon:

Absolutely. So maybe let's dive into that a little bit more. So what are some of the things that you have learned that make homes so vulnerable to wildfire?

Alister Watt:

Yeah, so the biggest thing is we have a program called Wildfire Prepared Home, which you can access either through IBHS.org or you can go to wildfireprepared.org, and they're both .orgs and not .coms. And that program is designed to demonstrate to homeowners the mitigation steps that they can take to make their home resistant, either just to embers, which is if you have an existing structure, it is very hard to retrofit an existing structure to be resilient against direct flames and suchlike, unless you built it that way in the first place. So we have a program there that at the base level is designed to protect against embers, and the most vulnerable part of the house for ember attack is vents. So if you think of the vents in an attic, if there's no protection there to stop embers from entering your house through those vents, then everything that you've stored in your attic becomes fuel.

So, that's number one. The second-biggest vulnerability is the five feet around the house. So if you think of an ember traveling through the air, they're kind of like airplane wings in some ways. There's that shape and wind carries them. And then they hit the house. Well, hitting the house is not actually going to combust the house. But what happens is, the embers fall down to the ground, and they sit there on the ground, and they've still got fuel burning in them, and then more come, more come. Eventually, there's enough for a party, and they generate enough heat off that pile that anything that is close by that is combustible, may well ignite. So if you have nice cedar siding on your house, that comes down to a level where the embers can get it, once those embers pile up enough and enough energy is created, it will transfer into that wood and ignite it.

So that five feet around the house really needs to be a place where embers go to die rather than to thrive. Those are two of the bigger ones. We have other findings around decks. One of the things that's counterintuitive about decks is you think about embers landing on a deck and you think, "Oh gosh, it's going to ignite the surface." That's not actually what happens. The embers go down through the cracks in the deck and they ignite the joists. And then the joists then wick all the way to the house, and then set the house on fire. So there's some mitigation steps around decks. There are windows. What happens in a wildfire is, with a lot of window installation types is the plastic around the edge that's holding the glass in gets to the point where it starts to melt. And when it melts, guess what happens? The windowpane falls out.

So, you’ve got to have a backup window behind that pane behind that, that's tempered to withstand those types of heat. So all of that goes together. There are more things you can see on wildfireprepared.org that go together into a package of measures, and it is a package. It's not like going to the Waffle House where you say, "I'm going to have this, this, and this, and I don't want that." No, you got to get the whole menu, and you got to do every single one, because you don't want to leave any vulnerability. Embers will find the weak link in the chain. And so, you do all of that and you get the certificate that attests to the insurance industry that you have completed all those mitigation steps and different carriers will act in whatever way they're going to, to recognize your achievement of that.

Similar program then is on the plus side, which is, as I mentioned, is for new build construction, and that's got non-combustible siding, special windows, etc., known combustible decks. Very hard to do from a retrofit, but much, much easier to do from a new build perspective. And all of that is grounded in the science that we've amassed in the last 10-plus years.

Mark Maroon:

So why is wildfire top of mind for the insurance industry right now?

Alister Watt:

So we all know the wildfires that took place 2017 on. Campfire in particular was one of the largest losses across perils. And when we look at some of the other broader statistics, absent any specific fires, a sixth, one-sixth of Americans live in areas of high wildfire risk. So one in six. And 3.3 million US properties are in high- to extreme-risk wildfire across the Western United States. Anyone living in California or around that area understands what those terms mean. And when we look at the effect of ember transport and conflagration, the highest-probability factor for a home catching fire is from embers. So ember transmission, ember ignition, causes about 90% of wildfire ignitions on homes. And if the home is ignited, there's a similarly large percentage chance it'll be a complete loss. So this is not like a hurricane where you get some roof damage. This is a wildfire where you lose the whole house and everything in it.

Mark Maroon:

And ember transport can go literal miles, right? It's not like we're just talking a couple of hundred yards or anything like that.

Alister Watt:

Yeah, there've been some studies looking at how far. Wildfire's complicated because the winds, the amount of fuel, the type of fuel, all of those factors, the size, the shape. But yes, we've seen studies where we've seen embers transporting for two, three miles and people might think of an ember as being something very small and sparkly, reminiscent of what you might see at fireworks and that kind of thing. Embers can be structural embers. In other words, they came off another house and they can be large, they can be inches and inches across. It could be a piece of bark that came off a tree and got wafted up through the plume and then gets carried by wind for miles. And those embers themselves carry a lot of energy in them. So it's all of the above. If that thing lands close to your house where you've got some vegetation, you know what's going to happen.

Mark Maroon:

Yeah. Immediately up in flames, or it lands on the roof where you've got a bunch of pine needles that have accumulated over time. I mean, it just doesn't stand a chance.

Alister Watt:

Correct.

Mark Maroon:

I'm going to ask you to pause here so we can pick up this conversation in our next episode. And listeners, please join me for part two of our discussion with IBHS's Alister Watt and head on over to munichre.com/climatecheck for more information.

Part 2:

Mark Maroon:

Hi everyone. This is Mark Maroon, vice president and head of portfolio management and reinsurance at American Modern, a Munich Re company. Continuing my conversation with Alister Watt, chief product officer at the Insurance Institute for Business and Home Safety, on the latest developments around advancing wildfire-prepared homes. Alister, that's a lot of good information that you'd share. In the case of a wildfire, if you do 9 out of 10 things right, do one thing wrong, unfortunately that's going to be the point of attack and that's what's going to cause the loss. So it really has to be a 100 out of a 100, you've got to make sure that you hit it all. So I guess I would ask then, knowing all of that is at play, what does IBHS do to raise awareness amongst homeowners at risk of a wildfire loss?

Alister Watt:

Yeah, and that's the 42 million dollar question, is how do you influence people to act? And I'll be quite honest, right now, we are trying many, many different things to find a sweet spot and we haven't found it yet. The education piece, we talk about, well, let's do some focus group research, let's do some quantitative research. And I'm like, now? We're not there yet. What we need to get to is how do we distribute the very simple educational messages about wildfire. We had an event recently in Marin County in San Rafael, at the fairground there, it's called the Ember Stomp, with a very great name. It was probably a 1,000 people, homeowners, in a county that understands wildfire. They have 49,000 defensible space inspections that are performed every two years.

So there is a lot of knowledge, there's also a fair amount of resources there for people to take action. And we did a demonstration, side-by-side demonstration bar, and first time we've ever done it with homeowners. And I was just floored at how little people actually understood about what it was that they needed to do and why. I heard a comment like, "Oh, so it's all about the wood fence attached to the house." And to your point, well, that gets you to the D level, but how do you get up to a C? “Okay, then you do your defense.” So people just don't understand that piece at all and so how do we educate people to understand the fundamentals of it?

One of the techniques that we are going to test out, we think we've got an avenue to do this, is middle school teachers are always looking for new resources to add in, to layer into their courses. So we're going to play with that, see if we can produce some content that can be distributed through those channels and so you're a middle schooler, so what do you do? You go home and you tell your parents, so you give them a huge guilt trip. And maybe some of them actually do take some action, but the point is, that middle schoolers are an incredibly effective way of getting a message to their parents. And so that's one of the things we're going to look at.

Mark Maroon:

Yeah. I mean, that's definitely an interesting approach in terms of manipulating parents through their middle school children. Hey, you know what? If it works, it works. So when I think through this, I always think through, all right, well, what's in it for me as a homeowner? And so obviously it's about a protected home, the less likely to catch fire, all that good stuff. But are there any other benefits that homeowners can receive from investing in this level of preparedness?

Alister Watt:

Yeah, I think there are a few. There's a basic peace of mind, where you're going to stand a much better chance in a wildfire. There might be some financial incentives, depending... Risk has a price, if you reduce your risk, maybe the price will fall. And talking to price, we've seen with our mitigation program in the hurricane coast, fortified, we have seen that fortified houses, when they sell, they sell for more than non-fortified houses, in terms of appreciation over their life that they... There's a research report from the University of Alabama from Dr. Lars Powell, that demonstrates that a fortified house is worth more. And so I expect over time we'll see the same type of thing with wildfire. It may get to the point where access to insurance in certain markets may be predicated on demonstrating that you have mitigated. And so that, albeit a little bit more of a stick than a carrot, is still real.

Mark Maroon:

So I guess maybe pulling on that thread a little bit more, this might be an ignorant question, I'm not really sure. But do you ever work with regulators to help to try to influence building codes in higher hazard areas, to try to get a little bit more proactive in building up some of these resilience features and houses?

Alister Watt:

Yes. That's a great question. So we do, we have a public policy arm. Michael Newman heads that up for us, he is very active with his team across the United States, both on our wind side in the Midwest. Again, it's a more tornado-type activity. And then on the West Coast with wildfire. We worked very closely with the California DOI, Department of Insurance, in shaping their Safer from Wildfire. All of Safer from Wildfire as a regulation named by the commissioner to be safer from wildfire, does conform with IBHS science. So they took the science, they put it into their own program, and at the same time said… and the IBHS program, Wildfire Prepared does meet this requirement in California. So we're trying to simplify that a little bit into other states and when we're having some success in doing that, Oregon in particular has been quite active and we see a lot of activity in Colorado, Washington state, et cetera.

Mark Maroon:

That makes sense, because I mean, I think for a long time everybody kind of associated wildfire risk basically being a California only thing. But certainly we've seen a lot more activity here lately in places like you mentioned, Washington, Oregon, Arizona, New Mexico, Colorado, Idaho, Utah. I mean, the list just keeps going on. That's just on the west part of the country. And the eastern coast, I mean, certainly there's some risk, Florida, New Jersey, Tennessee. So I definitely think that approaching this via more outreach is the appropriate way to go.

Alister Watt:

So you know what we've seen on the hurricane side, was Hurricane Sally, was that 2020? We had 17,000 houses in the path of Sally in Alabama and we got the claims data, we got the real claims data. We went through and took out trees and all that good stuff, and it created the proof point. That was the second inflection point for the growth of that program. The first was the insurance commissioner's actions, Commissioner Ridling in Alabama, mandating benchmark discounts. The second then was the proof that the program works. And I expect that what we'll see in California, in one of those markets, is some kind of wildfire event where a wildfire prepared community survives, hopefully untouched, and that will create that proof point and it will trickle all the way through the homeowners, they'll see it.

Mark Maroon:

I tend to agree, and maybe just to follow up on that a little bit, because wildfire is a little bit of a unique peril, where if I do everything responsible and go 10 out of 10 on all my risk mitigating actions. But my next door neighbor may be a little bit more irresponsible, stores his firewood under his deck, for example, or something like that. Hey, all of a sudden my house is potentially at a much higher risk from this fire, because of my neighbor's house, it's going to catch on fire and you've got the ember transport. So are you working with the Firewise communities or anything along those lines to help to mitigate some of that risk?

Alister Watt:

So we just recently signed an MOU with NFPA, specifically to align the messaging around Wildfire Prepared and Firewise. So in the past, there are very different programs, as you know, Firewise is a voluntary program, it's a recognition program. The IBHS program is a certification with inspection and no exceptions. In the past, IBHS has been talking about partial level, because that was a good place for us to start and Firewise has been talking about the community level. So the messaging has never really gelled together.

But what we see now, is that we are focusing now on the community level, which it does address some kind of impact of neighbors on neighbors. But because we're now talking about community, there's now an opportunity for us to align those brands. We are working on our Wildfire Prepared community standard, which is, that's the gold nugget. So you get a prize, you get some rewards for having a Wildfire Prepared home base for your house. You're protecting yourself against embers, you're not protecting yourself against your neighbor's house, but you're protecting against embers. And then you go to the plus level, where you're protecting against radiant heat and you're protecting against direct flame to some degree.

Well, the event though, all insurers and all homeowners want to avoid is the conflagration, it's the complete devastation of a community. And that is what we're trying to design around a program to prevent that at a community scale. And so, there's a lot of science that goes into it, there's a lot of engineering that goes into it. I'll spare you all that today. We will have a subsequent discussion about Wildfire Prepared community when we launch it formally at the end of this year. For a given community, there's going to be requirements about fuel breaks, there's going to be requirements about ladder fuels between structures and how much you can have.

Obviously the partial level mitigation will have to be in place, fuel breaks around the community for if there's a lot of vegetation, forest, et cetera. There's got to be certain distances, some transport. And based on topology, based on fuels, based on the various other factors, there's going to be a minimum requirement for the number of homes that need to be wildfire prepared home base and the number that need to be plus, and they may even be named. We may say, "These ones are on the edge here, for this community, they've got to be plus." Because there is a threat of flame approaching that under certain circumstances, and so that's what the community will be.

So, if you are the HOA, the chairman of the HOA, chair panel, whatever, of the HOA, and you're looking to try and get this designation, that should be very attractive to certain insurers. And you've got a couple of people that are not willing to take the steps in order to get there, so that you can meet that threshold, well, the politics will just play out. And one of the other things just we've seen in some of our research is, especially in a little bit more rural settings, people say, "I'm going to do this. I'm going to mitigate my house, because I don't want to be the person that sets my neighbor's house on fire." They've got that sense of community, which is great, it is very nice and warming to hear.

Mark Maroon:

Yeah. There's hope for humanity after all, right?

Alister Watt:

That's right.

Mark Maroon:

Well, on that happy note, Alister, thank you so much for joining us today. We hope to have you back sometime.

Alister Watt:

Thank you, Mark.

Mark Maroon:

And listeners, if you liked this episode, please subscribe to our podcast for easy access to past and future episodes of Climate Check. And as always, for more information, head on over to munichre.com/climatecheck. We will see you all next time.