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The Fort McMurray fire was the largest event in the history of Canada by a factor of two. The jury is still out on the final number but it looks like it is going to be somewhere between C$3.6 billion and C$4.7 billion and at least double the previous two largest losses in Canada: the Calgary floods in 2013 and the Quebec ice storm in 1998.

The factors that really contributed to the severity of the event were environmental, otherwise known as the 30-30-30 rule, which involves temperature, humidity and wind speed. When these three factors are all around 30, it’s a perfect recipe for wildfire events, and that’s what we had with Fort McMurray... all the factors were playing against us.

We have wildfires in Canada every single year but rarely do they threaten communities the way they have threatened Fort McMurray this year. The fire was ultimately labeled the

“beast” due to its ability to thwart efforts to control and direct it.

The result of that was the fire burned for 65 days which is significant in and of itself. The work to control and fight the fire was an enormous effort, hampered by strong winds and dry conditions. It is the first time in Canada where we have had a total evacuation of a population. All 88,000 residents were evacuated for 30 days.

That creates a challenge because you have nobody left on the ground to give you an insight into what is happening there. Very quickly following the evacuation we received requests from our clients for drone footage so we could get a better sense of what we were dealing with. There was a lot of fear mongering, speculation and misinformation about the entire city being consumed or destroyed by fire.

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PAT VAN BAKEL, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF CRAWFORD & COMPANY®, CANADA EXPLAINS WHY THE DEVASTATING WILDFIRES IN FORT MCMURRAY IN MAY 2016 WERE A GAME CHANGER FROM A HAZARD AND INDUSTRY LOSS PERSPECTIVE

Continued on page 4

Pat Van Bakel, President and CEO of Crawford, Canada

Also in this issue: How wildfire became a peak peril

FORT MCMURRAY THE NEW NORMAL?

•As the residents of Fort McMurray begin the long

and difficult task of rebuilding their community after the devastating wildfires in Alberta, Canada, in May, Crawford & Company® considers the implications. In this special On The FrontLine whitepaper we ask

if events such as Fort McMurray represent the “new normal” and how communities and the

insurance industry can better prepare.

Harsha V. AgadiChief Executive Officer &

President, Crawford & Company®

03WildfiresSpecial Feature

On the FrontLineNovember, 2016

The wildfire that destroyed 10% of the Alberta city of Fort McMurray is set to be the costliest ever Canadian natural catastrophe for insurers as well as the costliest wildfire loss ever. Industry insured loss estimates are expected to reach C$4.6 billion ($3.52 billion) according to the Property Claim Services (PCS) business unit of Verisk Analytics.

This compares to $2.7 billion (in 2015 dollars) for the costliest US wildfire in history (the 1991 Oakland Hills Fire in California) and AUD$1.8 billion ($1.4 billion in 2011 dollars) for Australia’s most devastating and costliest wildfire, the 1983 Ash Wednesday Bushfires.

Around the world the risk of wildfires is increasing, and with it, increased losses from such events. Some of the worst hit regions include the southwest U.S. and southeast Australia, but exposure has been steadily rising in south-west Canada, parts of the Mediterranean basin, western South America and eastern Siberia as well.

In populated areas, wildfires pose a major risk to lives and infrastructure, particularly in parts of the world where population density is growing at the fringe of urban and rural areas. In other parts of the world, such as Mediterranean Europe, the depopulation and abandonment of traditional agriculture has resulted in a building up of dry, fire-prone vegetation. A changing climate, with a trend toward drier conditions, inevitably favors the spread of wildfires.

“Increases in exposure at risk in areas where structures meet or intermingle with undeveloped land on the edges of urban zones have increased the potential for catastrophic wildfire losses,” explains Kevin Van Leer, RMS Senior Product Manager. “This, along with the impacts of a potentially longer fire season due to climate change, have laid the foundation of a new normal for wildfire risk.”

Van Leer is currently helping to develop a new wildfire model. “Fort McMurray was

bushfire seasons to overlap. “A lot of Australian firefighting resources

depend on the use of equipment such as aerial tankers and things like that,” explains Peters. “Historically the Australian fire season has been out of sync with the U.S. fire season, but with the prolongation of the U.S. fire season and our fire season we’re getting an overlap and so there are scarce resources out of the U.S. Helitankers, skycranes and the like are still being used in the US when we’d like them in Australia.”

Following the 2009 “Black Saturday” bushfires in which 173 people lost their lives and over 3,500 properties were destroyed in an area greater than 450,000 hectares, there has also been a number of class action lawsuits. This suggests an increasingly litigious environment post disaster, thinks Peters. “There is increasing emphasis to try and lay the blame against some party.”

Following Black Saturday there was also shift in attitude towards the human risk

02 WildfiresSpecial Feature

On the FrontLineNovember, 2016

How wildfire became a peak peril

Feature

A COMBINATION OF CHANGING LAND USE AND A WARMING CLIMATE ARE EXACERBATING WILDFIRE RISK, RESULTING IN INCREASED CLAIMS FREQUENCY AND SEVERITY

a wake-up call showing that wildfire losses, driven by these increased risk factors, can be at the same level as catastrophe losses from other well-known perils, such as hurricane.

In Australia, climate change is resulting in longer bushfire seasons and growing exposure in states that were previously relatively immune, explains Graham Peters, Executive General Adjuster, Crawford Forensic Accounting Services, Australia. “Bushfires are common in Australia and we get them every summer to varying degrees,” he says. “A large number of mainland cities and a huge number of rural towns are exposed. Even here, I’m 20km from the Central Business District of Melbourne and in extreme conditions I could be in a bushfire zone.”

“About the only state of Australia which historically hasn’t had a major problem is Queensland and the city of Brisbane, which is a lot further north and wetter,” he continues. “But the changing climate means the number of drying days in Queensland is increasing.”

Whereas previously it was extremely uncommon to see bushfires before mid to late November, with February the month most likely to see major bushfire losses, in 2015 there were bushfires during the first few days of October. The 2015-2016 Australian bushfire season was one of the most destructive in terms of property loss since the deadly 2009 fires in Victoria. A longer, more severe season had been predicted, given the strengthening El Niño over the Pacific Ocean and warmer sea surface temperatures in the Indian Ocean.

However, El Niño was just one factor amongst a trend towards longer fire seasons, with fire weather extending into October and March, according to the Climate Council of Australia. It has warned that the country’s firefighting resources will come under increasing strain as climate change causes the northern and southern hemisphere

posed by wildfires. Whereas previously, it was recommended that homeowners stay and do their best to protect their properties (the Stay-or-Go policy), now, there is a strong emphasis on evacuating early.

In California, the most wildfire prone state in the U.S., strong, extremely dry down-slope winds, known as Santa Ana winds, are infamous for causing the rapid spread of wildfires. A prolonged drought in Southern California and continued development on hillsides and canyon areas have also exacerbated the risk. Last year’s El Niño was expected to bring some relief, however, 81% of the state remains in drought conditions with 43% in extreme or exceptional drought, according to the US Drought Monitor.

“The El Nino did not pack anywhere near the punch they were expecting,” says Rick Younger, AVP and Managing Director, US Property & Casualty (California and Hawaii) at Crawford. “This added more fuel to the dry vegetation from the prior season and

lent itself to Southern California, Colorado, Arizona and Mexico becoming a tinder box for fires.”

From January to October 2015 there were 51,023 wildfires across the US, burning a total of three million hectares. This set a new record, according to the National Interagency Fire Center. As many as 90% of fires result from human activity, either deliberately as a result of arson or accidentally through the burning of debris or discarded cigarettes.

As the drought continues, fire prevention and mitigation has risen up the agenda. Homeowners in “red zones” are being asked to cut down trees, bushes and shrubs within 100 feet of their homes. “Insurers are providing this type of preventative spray that goes on houses and roof tops - especially in areas in the hills and foothills,” explains Younger. “Communities in certain areas and fire departments are also setting controlled fires to clear the brush as the drought continues.”

One of the problems, however, is the continued development of homes in canyons and hillside areas. “If nothing changes this is going to become an every year thing,” says Younger. “They can’t clear all the brush and if there’s going to be a continuous drought, then the more fuel in terms of arid vegetation there is going to be for these fires.”

He thinks an increase in loss frequency and severity is changing the way insurers view wildfire risk. “A lot of carriers have been tightening their underwriting protocols. You’ve got to go to a certain carrier if you’re on a hillside or in a high brush area, or an area that has had wildfires in the past. It’s going to be difficult to get a traditional carrier to cover that. If more of the severe claims continue to happen I can see more insurance carriers pulling out and more specialty carriers coming in to write that kind of policy.” OTF

Around the world the risk of wildfires is increasing, and with it, increased losses from such events”

“

27,000Residential Property Claims–CA$82,000 Value

$3.8bnTotal Loss Estimate

88,000People Evacuated

5,000Commercial Property Claims–CA$268,000 Value

0Fatalities

12,000Motor Claims–CA$12,000 Value

Fort McMurray in numbers

Source: CatIQ Inc®

But if everyone who wanted to put a drone up in the air following an event was allowed to it would be chaos in the skies, particularly during the fire-fighting efforts and water bombing of the town. Eventually, working with the government, we were able to share some aerial imaging with our clients so you could see the areas that were totally destroyed (around 10% of the town) versus those that were partially affected. So that imagery was extremely useful to share with our clients.

There were also losses post event. Buildings in Fort McMurray were sitting unoccupied for a month while fire fighters were water bombing and throwing on chemicals... and of course there were the smoke and heat exposures. When the town was getting ready to repopulate and they started turning the power back on, a few houses actually blew up.

A challenge from a loss adjusting process perspective was the difficulty of identifying smoke versus dust versus ash. Being located where it is, Fort McMurray is a typically dusty community. The remoteness of the location was another factor. Fort McMurray only has a small single airport servicing the area. If that airport had been lost – and there was some threat that it would have been – then the challenge would have been even more profound.

The insurance companies tend to want to set up command centers around the evacuation zone, so it was important for Crawford to have people on the ground able to support and deal with that. At the same time we were deploying many of our adjusters into our clients’ claims departments in other parts of the country to assist with claims triaging and cash advances.

Restoration of the town is going to take some time. Fort McMurray is a community set up for the oil and gas industry and at its peak they were building about 600 new homes a year. Around 1,800 to 1,900 homes were completely destroyed by the fire, so even if they got back to their previous production capability, it would be three-plus years to rebuild. And inevitably there are going to be issues surrounding the availability of materials and labor.

One of the issues the insurance industry is going to have to grapple with going forward is what does the new normal look like following Fort McMurray? Ten percent of the town was destroyed by fire and that is likely to be a C$4 billion event. So what would the insured loss have been if 25%, 50% or worst case 100% of the town had been lost? What would the impact on our industry have been? As we look back at this event it is likely to change the way the industry thinks about solvency requirements for this kind of risk. OTF

04 WildfiresAfter the “Beast”

On the FrontLineFall, 2016

The growing cost of wildfires2006-2016: AN EXPENSIVE DECADE FOR WILDFIRE EVENTS AROUND THE GLOBE

On the FrontLine is published by Zebra Media Limited.Editors: Helen Yates, Nigel Allen Design: Mark Bergin Publishing: Suzanne Hirst | www.zebracm.com

Canada MAY 2016

>$3.5 billionRussia

JULY 2010$1.8 billion

USA SEP 2015

$1.4 billion

USA SEP 2011$1 billion

USA OCT 2007$2.5 billion

Greece AUG 2007

$1.75 billion

Australia FEB 2009$1.3 billion

USA NOV 2008$2 billion

Canada MAY 2011$1.5 billion

Indonesia SEP 2015$1 billion

Total economic losses in U.S. dollarsSource: EM DAT 2016

Source: U.S. Drought Monitor

The ten most costly wildfires of the past decade

Current levels of drought across the U.S.

Key to intensity: D0 Abnormally Dry D1 Moderate Drought D2 Severe Drought D3 Extreme Drought D4 Exceptional Drought

Zebra