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Background

Last Updated: 5/31/2023
Issue: Wildfires are a significant risk for property owners across the United States, with millions of properties at high or very high risk and total annual damage often exceeding a billion dollars. The frequency, size, and intensity of wildfires varies significantly by year, but many of the worst years for wildfires have been in the past decade. In 2021, nearly 60,000 fires burned about 7.1 million acres. In 2020, about 10.1 million acres burned—roughly the area of Massachusetts and Connecticut combined. A recent UN report warns that the risk of highly devastating fires could increase by 57% by 2100.

Overview: While some estimates indicate nearly 90 percent of wildfires are caused by human activity, evidence indicates that severity of wildfires in recent years may be linked to changing climate and weather variability. Climatic changes are likely influencing recent wildfire trends. Wildfire seasons are starting earlier, due to warmer spring temperatures and earlier snow melt, and they are extending longer into the fall. Years with warmer spring temperatures and reduced spring snowpack tend to be the years with the most wildfires. Additionally, human development near traditionally fire-prone ecosystems has contributed to significant wildfire losses.

While all 50 states have incurred wildfire damage at some point in the past 10 years, wildfires are most common in the Central and Western states, where dry conditions, strong winds and extreme heat fuels fire and increases the number of acres burned. Wildfires can also be man-made. While some wildfires occur naturally without human intervention, such as those attributable to lightning strike, wildfires are often caused by humans either intentionally or unintentionally. These fires mostly occur during the summer months when the weather is hot, dry and windy. Human caused fires are often caught earlier and, therefore, losses are not as high as natural fires. This is most likely because human caused fires are started closer to habitable areas. 

The number of communities being built in natural wildland areas, known as wildland-urban interface (WUI), also contributes to the rise in extreme wildfires. More people are moving into the WUI to take advantage of the privacy, natural beauty and affordable living. The population shift has contributed to new fire threats; as additional neighborhoods are built in rural areas, the potential for incurred losses grows.

Wildfire Mitigation:
The Community Wildfire Protection Plan (CWPP) is created by fire departments, state and local forestry staff, land managers, community leaders and the public in an area at-risk from wildland fire. The CWPP assesses a given community’s wildfire risk and outlines ways to reduce or mitigate that risk. One risk mitigation technique is land management, which foresters, land managers and homeowners can use to create and maintain defensible areas around homes and businesses. 

Moreover, protecting property from wildfire damage requires preventative action before flames are sparked. Property insurance policies typically provide protection against losses due to wildfires. ISO Homeowners 3 Special Form (HO-3) provides coverage for a house and its contents. There are several applicable coverages under HO-3 in case of wildfire damage or even loss of use due to forced evacuation. Coverage A protects a house and its contents, as well as any structures attached to the premises, such as a garage or deck. Coverage B covers detached structures, such as fences, sheds or barns, but excludes any structure for which rental income is collected or that is used for business purposes. Personal property falls under Coverage C and includes property on the premises and that which is owned and stored elsewhere. Property loaned to a neighbor and destroyed in a fire would be covered under the neighbor’s policy. Coverage D covers loss of use, including rental and living expenses if the insured must vacate the premises due to unsafe living conditions, as well as lost rental income. Coverage D also includes loss of use, even if the property is not damaged, in cases where civil authorities have prohibited the owner from remaining in the residence. In case of loss of use due to civil authority, living expenses are covered for a maximum of two weeks.

Actions

The NAIC and the Catastrophe Insurance Working Group of the Property and Casualty Insurance Committee are increasing efforts to tackle the effects of natural catastrophes such as wildfires. These efforts include coordinated studies with various NAIC task forces and working groups on earthquake, severe convective storm, and wildfire matters of concern to state insurance regulators. Additionally, NAIC members have taken an active role in educating Congress and providing technical feedback on proposals regarding natural catastrophes. 

As wildfire risk continues to increase, stakeholders including federal, state and local governments; insurance regulators; fire protection agencies; insurers; and homeowners should partner to create solutions to implement sound risk management. Given an increase in catastrophes, the NAIC has provided a link from Insure U that can help consumers determine the best course of action before, during, and after a wildfire strikes. Consumers interested in insurance information specific to their location should contact their state insurance commissioner.

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