Abandon Hope, All Ye Who Build Here
Bloomberg Businessweek|November 16, 2020
Wildfires are close to torching the insurance industry in California
By Leslie Kaufman and Eric Roston

Dave Sapsis went to bed on Sunday, Aug. 16, with a sense of foreboding. As the head of risk mapping at the California Department of Forestry and Fire Protection, he’d seen the readouts from the agency’s high-precision weather forecasting system showing broad bands of clouds that could produce lightning without rain. After a wet spring, the state had spent the summer months baking under record-high temperatures, turning all those spring shoots into dry tinder.

Sapsis has been studying California wildfires for three decades. He knew what was coming next.

By the next morning, more than 900 separate fires were burning; these and the ones that followed have so far consumed 4.2 million acres, a record even in fire-prone California. As much land area has been scorched this year as in the past three years combined.

That’s not what disturbed Sapsis’ sleep. His primary responsibility is to anticipate how fires will affect people and property, and in that dimension at least, 2020’s fires have failed to break records. As of the first week in November, the fires had destroyed 10,500 structures, far fewer than the 23,000 lost in 2018.

No, what kept Sapsis up that night were the maps. For the past two years, he’s been working on a new model to determine which California homes sit in severe fire hazard zones. The rapid progression of climate change has made it difficult to finish—when conditions change, the model has to change, too, or it will be outdated before it’s even released. The lightning strikes meant more delays. “Dry lightning should be a pretty rare occurrence,” he says. “But from this fire season, I realized that we really need to understand the likelihood of such storms and how they fit into fire risk going forward.”

A severe hazard zone for fires is similar to a severe hazard zone for floods. The government draws the boundaries, and any new developments within them are required to submit to unforgiving building codes and are subject to steep risk-based increases to their insurance premiums. This is the kind of thing that determines where people try to build and live, much more so than even the most dire—yet still somehow abstract— long-term projections of global warming.

The last time Cal Fire created a map delineating areas of severe fire risk was in 2007. Since then, California has experienced 15 of the 20 most damaging fires in its history, including five this year alone. Moreover, wildfires before 2007 mostly affected forest, open grasslands, and the few houses that stood at the edge of what foresters call the wildland-urban interface. Recent fires have encroached on territory once thought to be safe, razing suburban block after suburban block. “No one imagined urban fires of this magnitude after the era of kerosene lamps,” Sapsis says.

There are 2.2 million California homes in the government-labeled severe fire hazard zones. Sapsis won’t say how many more are set to join them, but he will say the number is “likely very substantial.” He’s cautious because he knows that, despite the rising peril, being in the zone is an expensive burden, and the new designees are liable to push back—hard.

Climate change is making wildfires more extreme. Scientifically, that argument is settled. Researchers have shown that human-induced temperature and humidity changes in the first decade-and-a-half of the 21st century led to a 75% increase in Western forest area with high potential for fires. From 1984 to 2015, the land area lost to forest fires almost doubled. Human ineptitude may be partially responsible as overzealous fire-suppression practices have left much, much more fuel to burn. But that alone wouldn’t explain the difference. Fire season in the Western U.S. is now more than two months longer than it was in the 1970s and ’80s; temperatures are higher, summers are drier, spring arrives earlier, and fall comes later.

And yet, wildfires have always been a feature of the American West, and businesses and bureaucrats failed to take notice of the growing risk.

They saw it finally on Nov. 8, 2018, when faulty transmission lines owned by Pacific Gas & Electric Co. sparked a firestorm in desiccated Northern California. Known as the Camp Fire, it burned for 17 days, ravaging 153,000 acres and razing almost 19,000 buildings before the rain finally put it out. Eighty-five people died.

The financial fallout was unprecedented. From 1964 to 1990, the American insurance industry paid less than $100 million a year toward wildfire losses, on average. In the next two decades, that figure jumped to an average $600 million annually. From 2011 to 2018, it was almost $4 billion a year.

The Camp Fire alone caused $18 billion in property damage, $9 billion of it insured. A year before, in 2017, the Tubbs Fire and other wine country complex blazes had incinerated more than 6,000 structures, resulting in 22 deaths and more than $12 billion in insurance claims. Combined, the two seasons wiped out more than a quarter-century of underwriting profits for the California insurance market, according to Milliman Inc., a risk assessment company that works with insurers. (Consumer advocates point out that the industry has made some of this money back thanks to a court settlement with PG&E and the $1.3 billion in increased revenue from hiking up premiums.)

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