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Expert: California's fire risk can be managed

California’s deadly wildfires in November are forecast to cause a record amount of property damage. The Camp Fire, according to state officials, torched more than 153,000 acres and destroyed as many as 19,000 structures in northern California, including almost the entire retirement community of Paradise. The expansive wildfire is estimated to have caused between $11 billion to $13 billion in damage, according to CoreLogic. Total losses from the recent Woolsey Fire in Southern California, which burned through Los Angeles and Ventura counties, including Malibu, are estimated to be an additional $4 billion to $6 billion, the company said.

CoreLogic’s Tom Larsen, principal, Industry Solutions, and one of the company’s experts on hazard risk, discussed the fires and the outlook there for the future.  

tomlarsenHow relatively destructive have these fires been in California?

There is a lot of ways to talk about that question. One is the obvious one, that we are coming off two really horrible fire seasons in a row. When we talk about California, and we talk about the fire history, we have always had large fires. Most of California is very rural, very mountainous. Down in Southern California we have brush zones. Up north, we have got the forests. They have always burned. What is different now is that we live there. Over the last 50 years, we have more and more, collectively as a society, prefer to live near the outdoors, so we have got this concentration of homes in what is called the wildland-urban interface. More of us are living out there in these areas.

Are these big fires? They are very big fires. They are an honest reflection of the risk that we have today, but they don’t have to be a reflection of what we should expect in the future — because we are getting better at fire risk management, and managing people’s homes and safety. So, we don’t have to accept this going into the future.

These fires are exceptional because they were concentrated in more urban areas, then?

Absolutely. In years that we have the big fires that don’t hit the structures, and we have a 200-acre fire, we wouldn’t be having this conversation. California has many of those years.

In a previous study, CoreLogic identified massive fire risk in California and several Western states, but you have just mentioned that these super fires may not necessarily be a recurring problem. Could you explain that?

The factors that contribute to the fires, and make the risk worse and worse, is the increasing population in this wildland-urban interface. Certainly in the last two years, we have seen the lengthening of the dry season. It makes the fire seasons a little bit worse. Balancing that, we are continually working on how to detail a home to make it less vulnerable.

We went through, and looked at what caused these houses to ignite. We are also spending a lot of time looking at houses that didn’t ignite. Right now, we are talking about the houses that burned. But there are a lot of homes that did not burn. It involved a lot of things, like cutting back the brush that grows back every year. And passive features, such as building construction that is less vulnerable. We are improving the homes, and so it doesn’t mean that we are bound to keep on seeing these kinds of tragedies, although we cannot eliminate the fires.They seem to be part of California.  

How long will it take to determine the extent of the damage from these most recent fires?

You say you hit the finish line once you’ve replaced all the properties. The experience has been that it might take three to four years before you get through everything. The situation for these homeowners is that their home is gone. Trying to go through the inventory just to find everything they’ve got and try to replace it, just the physical assets, it will take three or four years to reconcile. We should have a pretty good, solid estimate within about nine months.   

With floods, a lot of people don’t have insurance, but is that the case with fires? Are most insured for their losses in situations like this?

Under-insurance is a challenging problem with fires. There are two populations of cohorts that have issues. One is that fire insurance is not mandatory if you do not have a mortgage in the U.S. The hazard insurance is a mandatory part of your typical mortgage. For retired folks on fixed incomes, the hazard insurance becomes an option. We look at the aggregate statistics in these events and right now we don’t have specifics, but we have seen the patterns and trends. There is a non-trivial, not insignificant, number of folks that did not have hazard insurance whose houses were destroyed.

As someone who is focused on trying to get the community to recover, that is an impediment. That is part of the under-insurance. Another part of the under-insurance problem is the valuation, what is the amount [of coverage] you should have. We look at the declarations page on our insurance. That is how much the insurance company is promising to be able to pay back to rebuild your home. Is that value accurate and complete? As a consumer, there are many different types of values. We definitely know the appraisal value of the home, what the house is worth, but that is the land plus the property.The market price may not align very well with the reconstruction cost. And it is the reconstruction cost that is really important. There is a cohort that could potentially be under-insured.

There is an exacerbating circumstance by what we call a demand surge causing post-catastrophe inflation. The trend is, certainly in isolated areas, that the labor cost is higher. All of sudden you need to rebuild 10,000 homes. You do have a shortfall in labor. The extra friction costs of bringing in outside labor, paying them per diem and hosting them in hotels, increases the cost of reconstruction. That is seen by the consumer as inflation, and yet that has to be part of your insurance.  

Do you have any sense of how many people might be in that situation?

No, because every situation is different. There have been articles talking especially about the Santa Rosa fires of last year, [about how construction-labor shortages are] an especially poignant and big problem. We are working on trying to get some hard and fast figures, but every fire is different. The Camp fire, which is the one up in Northern California, while it shared the characteristic that a lot of homes burned, unlike Santa Rosa, it is adjacent to the Central Valley. It has a higher access to a much larger labor pool. Going into it, we don’t expect as much of that demand surge for labor because it is a larger labor pool that they can pull out of it. It shouldn’t be as significant. We don’t have really good insights, other than perhaps a modest expectation that it won’t be as bad as Santa Rosa.

If you are a homeowner in areas that are at a high risk for fire, what are some ways that you can protect yourself or minimize the risk of a catastrophe like this occurring?

First and foremost, look at the information available on how to make your property, your lot, less susceptible and more fire safe. It is not a vaccine, but it does lower your risk. Second one is very personal — know your escape route. Know what you are going to take. The story coming out of these fires is that people had 30 minutes. You have got a very short period of time. We all have those treasures in our home. Know what they are. Be ready.

Some people go so far as to have a ready bag, because life safety is paramount. Then, you also have to plan to recover. You may lose your house, so check your declarations page and make sure it stays up to date. Labor costs and material costs go up with time. That home you bought eight years ago, to reconstruct it, it certainly is expected to be higher than it was when you bought it. Most people are not familiar with the construction costs for their home because they bought their home. Get advice to ensure that your home is adequately covered and update it every year.     


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