Climate change is increasing wildfire risk in California: RenRe

09 November 2020

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USA – Reinsurer RenRe recently hosted a Q3 2020 earnings call in which President and CEO Kevin O’Donnell spoke about climate change and the Californian wildfires.

In 2020, the Californian wildfires consumed more than 4 million acres, which is more than double that was recorded in 2017 or 2018.

This has resulted in over 90 million metric tons of carbon dioxide being released into the atmosphere.

Historically, wildfires have been known in re/insurance as secondary perils. However, since 2016 wildfire losses have risen in the US and Canada, and so are being viewed as catastrophic as a flood or hurricane.

O’Donnell commented on the natural catastrophe and more, saying: “Last year, during our third quarter call, I discussed our belief that climate change contributes to making extreme events more frequent and more severe. This year, it is already clear that we are experiencing an especially active season for both wildfire and wind.

“We continue to believe that there is strong evidence that climate change is increasing wildfire risk in California for two primary reasons. First, California’s climate is hotter and drier now than at any time in the past 120 years.

He went on the speak of the aftermath of the wildfires, explaining that higher temperatures and longer dry seasons accelerate the desiccation and depth of vegetation, creating fuel for larger, more intense wildfires.

In the call he discussed that if climate change extends the length of the dry season into the late autumn, it will result in an overlap with the Diablo and Santa Ana winds. This combination of high heat and strong winds results in the dramatic spread of damaging fires that were experienced in 2017 and 2018.

“Climate change is also influencing hurricane risk. Due to a globally warmed world, we anticipated a future, where a greater proportion of tropical cyclones reach Category 4 or Category 5 status. Climate change also drives sea level rise, which increases the impacts from storm surge. While there have always been natural cycles of variability in sea surface temperatures, we believe recent increases are primarily a product of climate change.”

Recognising that the can no longer use previous vendor cat models in a reliable manor, whilst acknowledging that global warming is dramatically increasing the risk of natural disasters is only the first step. In order for reinsurer to gain a true competitive advantage, this insight must be accurately reflected in the cat models used to price risk.

“Our scientists, meteorologists and engineers at RenaissanceRe Risk Sciences have been studying the impact of climate change on natural hazards for decades. They believe that a physical model, informed by historical observations, but calibrated to our best understanding of how the climate has and will continue to change, creates the best basis for categorising the full distribution of outcomes that should be a new written against.”

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