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The Ring of Fire: Intensifying Wildfires

The acceleration of heatwaves is linked to the changing behaviour of the jet stream over Eurasia, resulting in a 35% temperature variability. Furthermore, global warming also increases heatwave occurrences from direct warming, with temperatures on average about 1.1°C higher than they were in the late 19th century before emissions of carbon dioxide and other heat-trapping gases became widespread.

For Europe, the correlation between large wildfires and high temperatures has been detected in Spain, Italy and Greece. But this is also an occurrence within the UK. Paul Redington, a property loss expert for Zurich UK, said, “wildfires are no longer [just] an issue for faraway countries, with hot climates, such as Australia. Although smaller in scale, we’re seeing fires of increasing frequency and intensity here in the UK,” with the need to improve limited predictability and risk mitigation practices to prevent future wildfire destruction.

The world is on fire

Although an integral part of the Earth's system for over 400 million years, scientists have measured that wildfires will become more dangerous. 'Fire weather' will accelerate faster than many climate models have predicted to pose a more significant threat to our planet by becoming more extreme, more prominent, and hotter due to the escalation of harsh wildfire risk factors. This includes more frequent fire-generated thunderstorms and ignitions from dry lightning.

Fundamentally, wildfires are changing because we are changing the conditions through direct and indirect human activity through land-use changes associated with agriculture, deforestation and urban development exerted by a changing climate to increase the frequency and intensity of fire weather ultimately. As a result, climate change and land-use change factors are projected to make wildfires more frequent and intense, with a global increase of extreme fires of up to 14% by 2030 and 30% by the end of 2050.

As demonstrated in figure 1 below, the diagram highlights that by the end of the century, the lowest emissions scenario of keeping global warming likely below 2°C with ambitious action up mitigate greenhouse gas emissions (RCP2.6 - on the left), there remains a substantial likelihood of increasing wildfires as global temperatures continue to rise.

Figure 1: By the end of the century, the likelihood of catastrophic wildfire events will increase by a factor of 1.31 to 1.57. Even under the lowest emissions scenario, we will likely see a significant increase in wildfire events.
Figure 1: By the end of the century, the likelihood of catastrophic wildfire events will increase by a factor of 1.31 to 1.57. Even under the lowest emissions scenario, we will likely see a significant increase in wildfire events.

With more hostile wildfires forecasted to occur, for businesses, it certainly is not business as usual. The unpredictability of wildfire hazards makes it challenging for business owners to identify, quantify and take preemptive steps against wildfires. The CCRA has recognised wildfire risk as 'cross-cutting' with implications for people, buildings, infrastructure, and businesses, and therefore crosses the rural-urban interface. This is a crucial challenge for investors, infrastructure, energy supplies and especially insurers and reinsurers, with the replacement cost for assets across Europe insured against wildfire estimated at around €22.6 trillion. Highlighted in the UK after the heatwave in July by LV=GI, the insurance company was dealing with claims worth £1.2 million with a 205% increase in subsidence cases.

Risk Prevention’s Boiling Point

But at a European level, insurers do not consider wildfires a material peril for their underwriting portfolios. Risk models are less developed than other natural events, such as hurricanes. Chaucer believes modelling capabilities of wildfire risk in Europe are limited, relying on internal models for assessing risk rather than probabilistic hazard models. Ellen Gyandzhuntseva, Head of Exposure Management at Chaucer Insurance Group PLC, states, "Until modelling becomes more sophisticated, and the risk is better understood, wildfire risk in Europe will be difficult to price adequately."

In addition to the property business, insurance companies expect substantial increases in frequency and impact on agriculture, forestry insurance, fire and other damage to property and business interruption (BI) for commercial and residential businesses. As wildfire risk is generally covered by general fire or property insurance, an increase in this type of risk could lead to possible changes to pricing or underwriting practices. Ultimately, predicting how climate change will affect future wildfire risk worldwide is difficult, especially in Europe as a “densely-populated continent, the potential for material losses to the property are considerable.” Irrespective of such challenges, wildfires' increasing scale highlights the need for wildfire resilience precautions through advanced risk management.

Weathering the Flames

Knowledge of risk and potential impact is the foundation for informed decision-making for organisations. Eliminating the total risk of wildfires is impossible, but much can be done to manage and reduce these risks.

Climate X can substantially enhance an organisation's ability to address systemic disaster risk. It can identify and capture potential extreme weather-related exposure, turning future risks into opportunities. Firms can leverage these insights from Spectra to protect businesses, people, and supply chains from the threat of wildfires that could otherwise drastically impact our planet for future decades.

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