NEW RESEARCH: Natural Infrastructure Projects Reduce Wildfire Losses and Insurance Premiums

The Nature Conservancy in California, in partnership with Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, has released new research that demonstrates the financial benefits that accompany nature-based approaches to wildfire risk reduction, using the devastating 2018 Camp Fire in California as a case study.

The report, Quantifying Insurance Benefits of a Nature-based Approach to Reducing Risk: Wildfire Risk Reduction Buffers, shows that community-encircling wildfire buffers of land managed for fire risk, such as parks, playing fields, orchards, or other natural infrastructure projects, can help communities avoid property losses due to wildfire and increase access to fire insurance in areas currently viewed as uninsurable, especially when used as part of comprehensive risk management strategies.

Building on previous research from The Nature Conservancy, the Conservation Biology Institute, and the Paradise Recreation and Park District in the town of Paradise, California, researchers found that wildfire buffer strategies and building code updates, taken together, would have reduced the 2018 Camp Fire loss by 42%, from over $10 billion to roughly $6 billion.

Faced with growing wildfire impacts around the world, communities are searching for innovative approaches to reduce the damaging effects of wildfire and increase community resilience. California, for example, has experienced major population growth over the past 50 years, resulting in an increased interface between wild and urban spaces, and the degradation of natural habitats, leading to increased wildfire risk. Climate change threatens to further exacerbate wildfire and community interactions.

“In a future that is likely to see increased threats from wildfire, we can use nature-based approaches to strengthen communities’ resilience while providing a host of additional complementary benefits like cleaner air and water, climate change-fighting carbon storage, and improved habitat for wildlife,” said Sydney Chamberlin, Project Manager for Climate and Nature-Based Solutions at The Nature Conservancy in California. “Wildfire buffers are a great example of the risk reduction benefits that nature can provide, showing that we can reduce the risks of wildfire for communities while providing additional recreational, economic, and ecological benefits.” 

“Wildfire risk is a large and growing economic burden on communities as the climate in many regions becomes warmer and drier,” said Jonathan Clark, Managing Director of the U.S. public sector practice at Guy Carpenter, a business of Marsh McLennan. “Innovative strategies like community-based catastrophe insurance to mitigate that risk and safeguard the financial futures of those communities are critically important to their wildfire survivability.”

The report applies a sophisticated wildfire catastrophe model to quantify the financial benefits of ignition reductions for a range of wildland buffering strategies in terms of avoided property loss and lower expected insurance premiums costs. The analysis indicates that should wildfire resilience measures be implemented, communities could potentially lower their insurance costs by 40% or more, converting a one in 100-year loss level into a much rarer, one in 350-year loss level.

Effective use of nature-based strategies and community-based insurance approaches can help communities build resilience while minimizing harmful impacts to the ecosystems that surround them. In particular, wildfire buffers when managed to be less flammable through vegetation management or irrigation can provide financial and community benefits while reducing the risk of wildfire within the community.

Communities can also capture financial benefits for residents, including reduced premiums, through leveraging community-based catastrophe insurance (CBCI), a whole-community insurance model. Developed by Marsh McLennan and the Wharton Risk Management Center, CBCI coverage is arranged or made available by the community for homes within its jurisdiction to deliver the economic benefits of resilience enhancements, such as vegetation management, directly to residents.

Together, the potential reductions in premiums through CBCI and the value of avoiding future losses can strengthen community incentives for resilience investments, further lowering risk.  

The full report is available here.