The Differing Perspectives of Utilities & Insurers
Wildfires are increasing and assessing the risk is surprisingly different depending upon the vantage point.
For insurers, wildfire risk is tied to specific location and the damage to the structure or business. For a utility, risk is understood much more broadly. It is measured in terms of its impact on the community, outages, physical damage and reputational damage.
Like a Ham & Eggs breakfast, insurers are as involved as the chicken that provided the eggs for the breakfast. The local utility, by contrast, is like the pig, fully committed.
An electrical utility, whether Investor-owned (an “IOU”) or municipally or Publicly-owned (a “POU”) has a very different perspective on the issues associated with a wildfire than a property insurer. A utility is tied to the location of their customers, their fixed transmission and distribution assets and, thus, a community. For years, all utilities have been aware of wildfire risk. They have been increasing their efforts to mitigate the impact of catastrophic wildfires in a highly motivated way.
Utilities have a much clearer understanding of where wildfires start and how they move. Most wildfires start in uninhabited areas, and the economic damage occurs are the fire moves into the inhabited areas. Thus, utilities focus not just ignition events, but on vegetation, topography and the landscape’s capacity to feed the fire. Managers at utilities look at these issues through the lens of risk reduction at the ground level.
In contrast, the business world’s risk takers, the insurance industry executives, have quite a different perspective. While insurers talk about taking risk, each firm has the agency to accept or refuse to any specific risk. Through their underwriting processes, they make decisions every day as to which risks they will accept.
Athena’s Voice of the Acre® was not designed as an underwriting tool. It was designed, from the beginning, as a tool to help business incorporate information about land into decision making. For insurers that means underwriting insights, portfolio risk optimization and risk pricing for reserving and reinsuring.
In contrast, for a utility, Athena offers insights into the most efficient allocation of their wildfire mitigation budget. They want to put firefighting equipment, sensor and labor where it will have the greatest impact on reducing wildfire damage to their communities of service.
We have been looking a number of California fires, and comparing the CalFire ignition location to the footprint of the fire. Below is an example. The Peter Fire in June 2022 was a 304 acre fire in the Shasta-Trinity County area.
The map and pie charts are from Esri, the analysis of the wildfire risk is Athena’s Voice of the Acre® telling humans about the conditions of the landscape.
The data from CalFire suggests that the fire started in a Yellow area.
We don’t know where fires will start, but what we do know is that at the end of the year, when you look back, 70% or more of all the wildfires that occurred will be in areas which at the beginning of the year, were scored as Red by Athena. On the flip side, at the end of the year, regardless of how many fires occur, or where they occur, 5% or less will have occurred in areas which scored Green.
The pie charts summarize the results of a recent review. The Peter Fire was an example of one of multiple fires we looked into. Aggregating the results of many fires in 2022 in California, the area 5 miles from the CalFire ignition information showed Targeted Greens and Greens totaled at 8.7%. When the fires were over, areas which scored Greens were inside the burn perimeters accounted for 2.16% of the land. Targeted Greens were 0%.
Yellow scored locations showed the same pattern. 36% of the land within a 5 mile radius of ignition event scored Yellow. But, of the land within a wildfire’s footprint, 9.73% scored Yellow.
As you would expect, the Red and especially the dark or Target Reds made up the difference. In the area surrounding the ignition events, 31% of the land was Red and 23% of the land was the highest risk, Targeted Red. 30.3% of land which burned was scored Red by Athena and 57.8% of the land which burned scored Targeted Red.
Is your wildfire risk a Ham & Eggs breakfast? Or a Peanut Butter & Jelly Sandwich? What are we planning for dinner?
Athena is a next generation InsurTech data vendor which produces synthetic data. The earth’s essential data is refined to make it easy for enterprises to use environmental information for future contracts, proprietary business decisions and risk management.
Contact us at Info@Project-Athena.com