The Insurance Dilemma Part 2: Defining Risk

Episode Transcript
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Frank Frievalt (00:00):
Your goal is not actually to have insurance. Your

(00:02):
goal is not to burn down yourhouse or let your neighbor's
house burn down your house. Imean, I want to have health
care, but it's not so I can gohome this afternoon and have a
stroke and collect on that care.

Megan Kay (00:16):
This is the Living with Fire Podcast brought to you
by the Living with Fire Programat the University of Nevada,
Reno Extension.

Jenni Burr (00:26):
All right, everybody, welcome back to
Living with Fire. I am JennyBurr, and I am here with Megan
Kay. And for this episode, Megantalked with Frank Frievalt. So
Megan, tell us a little bitabout what you discussed with
And can you remindus what WUU is?

Megan Kay (00:40):
Thanks, Jenni. Yeah.
So this episode, you know, weFrank.
did last year, we did an episodeall about wildfire insurance. We
talked with the at the time, theAssistant Commissioner of the
Nevada Division of Insurance,and we really wanted to kind of
unpack some of the challengesthat folks were facing, getting
insurance and keeping insurancein Nevada, we invited Frank

(01:03):
Frievalt on the podcast to talkabout it more on the macro
level, you know about what'sgoing on in the nation with
insurance companies and reinsurance, and how that's
impacting fire departments, andhow fire departments and fire
protection districts, what rolethey play in advocacy and just
kind of engaging with bothhomeowners and insurance

(01:24):
companies to try and close someknowledge gaps and data gaps
when it comes to figuring outwhat is the wildfire risk and
what does mitigation do toreduce that risk, right? So we
talk about risk, and then wealso our program, and many other
programs talk about, we try toeducate folks about things that
you can do to reduce that risk.
And what we're seeing is thatpeople are still struggling to

(01:47):
get insurance, or, you know,insurance companies are all kind
of operating on their own, withtheir own risk models. And we're
just noticing that there aredefinitely a lot of lot of gaps
in knowledge, both on theinsurance side and on the
homeowner side. So Frank is theYes, thank you. So
WUI stands for wildland urbandirector of the WUI Institute at
Cal Poly.

(02:14):
interface. This is justreferencing, you know,
communities that are intermixedwith natural vegetation, or at
least kind of close to that. Youknow, embers can fly a couple
miles ahead of fire. So it's notnecessarily just the homes that
are on the edge, you know, itcould be one to three miles in
from that zone, but a lot oftimes what that looks like is,
especially in Reno and northernNevada. It's not a hard line,

(02:36):
you know, it's an intermix, andthese communities tend to be at
higher risk for wildfire. So CalPoly in San Luis Obispo has a
WUI Institute, and Frank isretired Fire Chief and is the
Director of that Institute. Andso he really kind of broke it
down the issue and unpacked itfor us. And really, after the
interview, what really stuckwith me, because I asked him,

(02:57):
you know, not to give awayspoilers, I still want you all
to listen to the episode.
There's a lot of greatinformation in here, but there
is sort of a little bit of truththat is hard to swallow, but
mixed with hope, being that wedo have power to reduce our risk
and to, you know, help ourcommunities be safer. And as
individuals, we can take action,but we really need to work
together as a community, becauseif we don't have this community

(03:18):
wide mitigation, or fire adaptedcommunities effort, it's not
going to have as much of animpact on reducing our risk,
especially when we have denser,more urban communities, like we
saw in like LA and Altadena.
That community, it wasintermixed with natural
vegetation, but the houses arepretty close, and you can do
your defensible space, and youcan kind of work on your home

(03:40):
hardening, and that willdefinitely move the needle. But
if we don't get everybody, or atleast Frank was talking about,
like 70% of the communities inthese high risk areas, to start
taking action, then we're notgoing to see the positive
effects as much as as we could.
So I really want people to takethat to heart, and, you know,
take some action andresponsibility, and let's see if
we can reduce our risk togetherand make our communities more

(04:03):
fire adapted. So but yeah,that's our conversation with
Frank, and hopefully you guysget a lot out of it, and we're
going to be talking more aboutinsurance, right?

Jenni Burr (04:13):
Yeah. So we're going to be talking with folks from
the Nevada Division ofInsurance, and we're going to
delve into a little bit moreabout what's going on here in
the state of Nevada, and alsotry to start to understand what
do you do if you've had a fireand then you're trying to
navigate the insurance process.
So stay tuned for futureepisodes related to insurance.

(04:33):
All right, without further ado,let's hear from Frank.

All right, good afternoon. My name is Frank
Frievalt. I am the Director ofthe Wildland Urban Interface
Fire Institute at San LuisObispo Cal Poly. Been here a
little over a year and previousto that, I am largely a fire
practitioner. Have worked on oneside of the Sierra Nevada to the
other since 1979 at gosh, Iguess it's special district,

(05:11):
city, county, state and federalorganizations.

Megan Kay (05:14):
I want to give you the opportunity to set the stage
the way you want to set thestage. We were going to ask you
know, if you could just describeyour best understanding of what
affects the wildfire risk, like,what goes into calculating
wildfire risk to homes andbuildings?

Spencer (05:27):
Yeah, and I think, just to clarify that would be as best
as we like understand it theactual risk not how maybe
insurance companies or actuariescalculate the risk, like, as
best as we know what causesthere to be a higher risk or
lower risk for homes and thatlandscape view.

Now it's an excellent distinction that most
people don't make, right? You'veliterally done your homework
here. So when you're askingabout, you know, I'm gonna say
calculating risk. I think it'sGeorge Bell that came up with a
statement, all models are wrong,some are helpful. And what he
meant by that was, it didn'tmean that, you know, don't ever
use models. But the point was,you know, models are always

(06:03):
approximation of reality thatcan be helpful in determining
things that you know correlatecan provide explanatory power.
And so I want to be clear, whenwe're talking about calculating,
we're really dealing in therealm of trying to figure out
vulnerabilities, maybeprobabilities, but I'd be less
worried about the decimal pointsand more worried about the

(06:24):
things that correlate a lot ofcomplexity in this space. So I
think the discussion really is,let's, let's talk about risk
from really the two sides thatwe're trying to connect. So
let's talk first about thewildfire risk on the ground from
a fire practitioner standpoint,and then look at it from from
the risk transfer side of it, ofinsurance and reinsurance. What

(06:46):
really pulled me into this. It'salmost embarrassing, but I don't
think I really understood thatthings were changing in the
wildfire space, truly changinguntil about 2015 I'm just I was
just starting to see abnormalbehavior that was becoming more
and more regular out in thelandscape. And we had had, you
know, Oakland Hills, and we hadhad in the 60s, and some other

(07:07):
times, we'd had someconflagrations associated with
wildfire, but not on theregularity that we started to
see since the camp fire.

Spencer (07:17):
Hey, everyone, this is Spencer. Just a quick vocab
moment. We're going to use theword conflagration a lot today,
and that means an extensive firewhich destroys a great deal of
land or property. I had to lookit up, but now you know, so you
don't have to look it up aswell.

And so what started me down this road back
about then I was working up atMammoth Lake's Fire Protection
District at the time, I had aproperty owner who passed our
defensible space inspectionearly in the week, and before
the week was over, they receiveda non renewal notice from their

(07:53):
carrier for too much wildfirerisk. Not surprisingly, they
called me up, and I the supposedfire professional, could not
answer this disconnect. And soit started me down the path of
figuring out, how could we beinterpreting risk, wildfire risk
to homes so differently. That'sreally what started me down this

(08:13):
road. So from the on the onehand, you know, kind of take it
from a just a physics standpointof heat transfer, and you let me
know if I'm getting too nerdyhere, but I think it's
important.

Megan Kay (08:22):
Yeah, no, go for it.

So really, there's three domains that we
have to deal with, fire spread.
First one is fire period. Takesfour things, heat, fuel, oxygen,
chemical chain reaction, removeany of those fires out. But we
have fire all the time thatdoesn't cause us problems. But a
fire doesn't propagate where wedon't want it. It's not a
problem. We used fire since, youknow, we figured out how to set

(08:44):
things on fire. So the seconddomain is really about
propagation and heat transfers,again, four ways, convection,
conduction, radiation, directflame contact. And you can,
ideally, you can, you know, tryto mitigate all four of those.
But the ways that we we can lookat mitigation packages, but what
we're really talking about ishyper propagation. And so for

(09:04):
hyper propagation within thewildfire landscape, we look for
something called alignment,where you have fuel weather
topography all properly alignedto go for hyper spread. These
are when you get your big fireruns. You see these massive
pyrocumulus clouds, means youhave, you have alignment in
those areas. So it's reallythree domains. I think it's 11

(09:27):
variables, and those are thethose are the options to disrupt
propagation.

Megan Kay (09:39):
I wanted to take a quick break to talk about the
Living with Fire Program. Maybeyou found this podcast and
you're wondering, what is theLiving with Fire Program? Well,
we've been around since 1997we're managed by the University
of Nevada Reno extension, andwe're really a collaborative
effort amongst federal, stateand local firefighting agencies
as well as resource managementagencies. Is to help people

(10:01):
adapt, prepare and live moresafely with wildfire. So if you
haven't already, check out ourwebsite, livingwithfire.com
where you'll find all of ourresources and tools that will
help you live more safely withwildfire. Okay, back to the
show.

Spencer (10:19):
Can we just give the listeners an example of what
like alignment could be? And so,like, the way I've heard it
described is, like, let's say wehave a valley with winds blowing
up that valley, and there's abunch of dense vegetation in
there, and when you have thosethree conditions aligned, then
you're going to get much fasterspread. Is that how you would
describe it as well?

Yes, for students, sometimes what I'll do
to demonstrate is I'll takethose banker boxes, you've seen
those, so you find a garage,simply a big one with no smoke
detectors, but you have no windin it. So if you start a fire
right in the middle of the box,it burns uniformly in a circle.
If you tilt one edge of the boxup just a little bit, you'll see

(11:00):
that the burn pattern on thatbox lid is now oval, and it has
a narrower base, and it opens upas it's going uphill. That's
because the flames are actuallybending over just a little bit
radiant heats, preheating thefuels, and you have a natural
upslope. So the first one is youhave uniform fuel. Then all we
did was add some slope, a valleyto your standpoint, if you added

(11:22):
more fuel, what I do is I draw agrid and put on about 100
toothpicks with the little,little plastic things. And if
you again, if that's flat andyou uniformly have the fuel,
it'll burn in a circle. But ifyou have it flat and you put
more toothpicks on one side andthe other, the fire will behave
as if it's going uphill, becauseit has more fuel in that
direction. That brings in moremore air on the backside, and it

(11:44):
creates that. Now, if you tiltthat up and you have more fuel,
well, now you have two areas ofalignment. You have fuel and
topography. And then when youthrow a wind in behind that,
which is not uncommon duringpeak times, because even without
a fire, you'll have an upslopewind. So when you have air and
preheating fuels, and you havethe topography, especially if

(12:06):
it's sloped up, and you havehigh densities of fuel, and then
throw some wind in behind that,those three factors will give
you hyper propagation, or, youknow, large fire runs.

Megan Kay (12:17):
I have a follow up to the hyper propagation idea. So,
is this a new idea? Because yousaid this is kind of, you
noticed a change since 2015like, is this idea of all these
factors being in alignment.

Alignment in terms of wildfire, has really
been the same. What we're havingto rethink here is that all the
attention we're putting on this,this is just my opinion. I think
it's shared by some others, butthe, you know, the political
interest, the financialcalamity, all this attention,
it's not really about wildfires.
It's about conflagration, levelsof life and property loss. I

(12:50):
mean, I've been at this forquite a while. I didn't, haven't
seen anything before thecampfire, like the amount of
level of effort, politicalinterest, philanthropic, venture
capital, government money goinginto this problem. We certainly
haven't had the insuranceproblems, and we certainly
haven't had the losses ofproperty at the scale we have.
And Jack Cohen writes about thisas well, that we really don't

(13:13):
have a WUI problem. We have ahome ignition problem. And once
you get into conflagrationconditions, one of the factors
is that the structures canbecome the dominant fuel type,
not being a wildfire anymore.
It's really, you know, aDresden, you know, World War
Two, fire bombing typeconflagration, right? So part of

(13:36):
what we're having to do now isde conflict, how we think about
wildfire and how we think aboutconflagration. They're related,
but, but once you make thattransition, this is not a summer
wildfire. And so in terms of thephysics part of this, you know,
we went into these differentdomains, different strategies we
can bring to bear. And then alsosome colleagues and I are, we're

(13:58):
envisioning the WUI burns as asystem, and we feel like we need
to mitigate it as a system.
There will not be one singlething you do that actually
resolves this. And so we'vedivided up this way about a half
to a quarter mile outside of theWUI community and in we'll focus
on the vegetation to vegetationfire pathway. This would be what
you would think of as typicalwildfire spread, right? So this

(14:20):
is, you know, trees, grass,brush, etc. So that's one
pathway. The second pathway isvegetation to structure, and
this is more like a donut fromthe WUI community, about 100
feet out into the vegetativelandscape that'll carry fire and
then into the density of thosestructures, about two layers of
homes where the density wouldcarry fire. So think of this as

(14:42):
a donut around the perimeter,and then within that is we're
defining a WUI community as anycollection of 100 or more
structures where the averagestructure separation distance is
less than 70 feet in 50% of thecases. Now that's a fancy way of
saying the houses are closeenough to be the primary
propagation fuel from structureto structure, and that would be

(15:05):
the structure to structure firepathway. So, you know, if we're
talking about the risk of firepropagating on the fire side,
we're envisioning it asvegetation to vegetation,
vegetation to structure,structure to structure, and in
each of those, we have threedomains and 11 variables to
decide what to pull from to tryto disrupt the fire spread. May
not stop it, but how do wedisrupt it? How do we slow it

(15:28):
down? And the last part I'll puton that, before we talk about
the risk on the insurance side,is you're going to start to hear
this term of fast fires. If youreally look at the most damaging
losses of property and lifetypically going to happen within
the first 12 to 24 hours. It'susually high winds, low
humidities. May not beextraordinarily high

(15:50):
temperatures following a periodof desiccation where the fuel
moisture is really, really low.
And the reason those are sodevastating, I mean, most, most
wildfires are, unless you're upin the boreal forest or
something like that, these arehuman caused fires. It's not
unlikely there's a closeproximity to the WUI community.
And so when you have especiallyfine fuels, grasses, lighter

(16:11):
types of brush, when you getignitions under those
conditions, which are optimizedfor hyper propagation, and you
don't need necessarily to have alot of topography there, because
the wind speed makes up thedifference. When you're talking
about variables in firemodeling, I think wind is
something like 7x it's weightedthat much heavier than all the

(16:32):
other types.

Megan Kay (16:33):
I mean, I've witnessed that firsthand in Reno
we live in a valley, or it'slike a bowl, basically, we're
surrounded by mountains. Andthen once the air starts to cool
down, you get these, like, downslope winds. Every single day,
we're talking like 30 mile anhour downslope winds, and that's
a daily occurrence. And then ifyou have a storm, which is when
most of our fires have happenedduring like, cold fronts, you

(16:56):
have like, 60 mile an hourdownslope winds that are pushing
fires downhill. So it's theopposite pattern. Is the one you
just described, which is reallywild.

Right? But it makes the point that the wind
completely overpowers thetopography.

Spencer (17:10):
Yeah. So I think one thing to try and connect some
dots to things we talked aboutin the first episode, with the
home hardening and defensiblespace with your donut three
level analogy here. Do you mindjust sharing how you might think
about or how you might fit ideasof home hardening and or
defensible space into each ofthose three layers?

Right. So in the vegetation to vegetation space,
it used to be that for a longtime, and I'm not throwing any
stones here, right? If there areany shortcomings to the fire
service and our approach tothis, I have my fingerprints all
over it. If I say anythingthat's counter to sort of legacy
thinking on it, I'm guilty ascharged, right? I've had to come
to the conclusion that thingshave incrementally changed,

(17:53):
which I can discuss when we'reready. But in vegetation to
vegetation, we know that theembers will fly for, you know,
miles, potentially under theright conditions. I mean, that's
not all that common, but you canget very, very long range
spotting, you know. But 100yards is easy. And so, you know,
if we're jumping things like,you know, eight lanes of traffic
in LA, this idea of sort ofMaginot Line Type, thinking

(18:15):
about a fire break, at least inthe conditions we're having now,
doesn't really do much, and twoproblems with that, they're hard
to maintain, and it's notuncommon to have the type
conversion go to grass, which,if you don't keep up on it, then
it's just just a faster problemof a fast buyer. So one of the
things we're experimenting withright now is the idea of minimum

(18:36):
time travel pathways. This is anembedded output from, gosh, I
think it's flam map, and maybealso fire site, I don't recall,
but essentially, we always thinkof the fire perimeters. Is this,
you know, amoeba shaped. It'sgot a continuous edge on it. And
unless you're on a really,really continuous fuel type,
like just grass or very uniformbrush, fire doesn't usually,

(18:58):
especially under conflagrationconditions, doesn't move with
this smooth, sort of flamingfront that you can, you know,
drive along and just sort of putit out as you go. It'll have
areas that will, that will movemuch faster, really kind of
micro alignment for propagation.
And what we realize is, ifwe're, if we're trying to stop
conflagration, which is reallyproperty and life loss, where

(19:18):
structures the primary fueltype, we need to slow down the
fires the speed at which they'recoming into communities, because
you have a limited ResponseForce always and again, going
back to Cohen's, I think it'ssix stages of kind of
conflagration, disaster. It'snot the right term. But you
know, essentially, when you havemore fire than you have
suppression resources, you lose.

(19:39):
The idea of trying to figureout, how do we slow fires down
on these pathways is one thingthat we're starting to
experiment with, but we have tofind a better way than what I
call just standing fortressmindset. Fire breaks that we
can't maintain anyway, and theembers go over so in the
vegetation to vegetation isbasically to answer your
question. We're looking at waysto slow. The fire that could be

(20:01):
disrupting it with differentfuel types that don't burn as
fast. Typically, you can. Youcan mechanically thin. You could
prescribe fire. You can use somekind of type conversion. We're
also experimenting right nowwith using retardants as a pre
treatment, and see how manyyears you can get out of that.
So that's in terms of disruptionin the vegetation to vegetation

(20:22):
space. We're thinking aboutthose.

Jenni Burr (20:25):
Communities located in wildfire prone areas need to
take extra measures to livesafely. There are many ways to
prepare communities andproperties for wildfire,
including creating andmaintaining adequate defensible
space and hardening homes towithstand wildfire. This could
mean altering or replacingcertain components of the home.

(20:47):
Our wildfire home retrofit guidewill help you better prepare
your home and communities forwildfire. You can find the guide
in the resources section of ourwebsite at livingwithfire.org.

I'm going to make the transition to risk from
the risk transfer side. So oneof the pieces of connected
tissue is that we we have tomake the value of mitigations
visible to the risk transferindustry. Now this is the part
where I'm sure I'll make somepeople squirm a little bit, and

(21:19):
that's okay. That's okay. Butwildfire as a peril, amongst all
the other perils, it's alwaysbeen a secondary peril compared
to, you know, wind and water,hurricane, flooding, that type
of stuff. You know, water is thebig one that is really the most
destructive. But wildfire wasvery consistent. It was
understood in terms of lossesthat they could expect. And so
that's been our history there.
And so there wasn't a whole lotof need to understand all the

(21:40):
details I just talked about. Butthree things have been
accumulating as incrementalchanges that have tipped the
scale to these configurationlosses. That's an accumulation
of fuels secondary to prettyaggressive suppression policies.
Doesn't explain all of it. Thereare certain types, you know, the
cycle for fire return intervals,some of them are just fine. So

(22:01):
it's not all about that, butthat's that's one. We do have a
significant accumulation offuels in some places, simply by
way of suppression andunintended consequence. And now
those policies popped up 1910,or so. The second one is that,
especially since post World WarTwo, we've had an increase in
development into fire dependentlandscapes, and there's reasons

(22:21):
for that. And the last one is,I'm no climate scientist, but as
I've tried to study and become astudent, one of the principals
just leapt off the page to me,and it was this concept of vapor
pressure deficit. You know verywell from the Sierra Nevada
mountains that as moisture comesin off the Pacific and it raises
up an elevation, it precipitatescold air can't hold as much

(22:42):
water, and consequently, thenyou get this rain shadow on your
side. You know, that's why it'shigh desert. That's a micro
version of this. So if you taketwo equal air masses, and one is
warmer than the other, the warmair mass can hold more water and
suspension before itprecipitates out. When you do
that at a global scale, it meansthat the baseline vapor pressure
is different than it used to be,and it can hold more than it

(23:04):
used to, which means plants inevapotranspiration are giving
off more water as a standardissue than they used to, and I
suspect eventually they'll adaptto that, but it's going too fast
right now, and so vapor pressuredeficit, development fire
important landscapes andaccumulation of fuels cost. Of
fuels collectively have changed.

(23:24):
What historically in our rearview mirror was a very
predictable straight road.

Megan Kay (23:28):
Just quickly. So the vapor deficit that's just
resulting in lower moisturecontent in plants, basically,
they're evaporating theirmoisture.
Part of it.

And this is where we're making the
transition to the risk.

Megan Kay (23:39):
Yes, okay.

So what it really means is that the
atmosphere can hold more waterthan it used to, which means
when you go periods withoutrain, those periods can be
longer, because the atmospherecan hold more before it
precipitates out. Plus there's abaseline vapor pressure deficit
that's happening all the time.
It also means when it does rainor snow, it can rain or snow a
lot, a lot more than we're usedto. And so the one predictable
thing we're seeing out ofclimate change is an increase in

(24:02):
the frequency of extremes. Sostart to make that transition
out of the risk transfer, folks.
I'll start that where I justended the other one. If our
future weather is going to havemore extremes from the insurance
industry, when they underwritepolicies, they have to hold back
capital to be able to pay off,you know the normal claims that
you're going to have, and theyknow how to calculate that very

(24:24):
well, and the average annualloss, and they know there's
occasionally these big thingsthat happen, right? And the way
you would have to hold on to aton of capital to be, or you buy
that down, or the insurers buyinsurance, it's reinsurance, so
they buy that down, and thenthat frees up some of the
capital. And so if we're talkingabout that weather line again,

(24:45):
you know these little blipsthat's within the individual
company's capital, when you havethe big ones, that's what you
buy reinsurance for. Well, we'rehaving a global increase in
extreme weather the the cost tothat is being transferred to the
global reinsurance market.
They're seeing losses they'venever seen before at a global
scale. The reason that'simportant when we talk about,
go, do these mitigations. Youknow, do IBA says NIST we'll be

(25:08):
wildfire prepared. We'll do allthese things. Hey, where's my
insurance coverage? I did allthese things. Well, there's two
challenges with that. Actuallythere's three. So one is it
assumes that the currentpremiums are adequate to handle
that. So in California, we hadsomething called prop 103, back
in the 70s, I think 80s, and itwas a real it was a rollback of

(25:33):
premium, and it has suppressedprices. Now that's good for
property owners up to a point,but if it's too much of a
disconnect between actual riskon the ground and calculated
risk, then you have anunsustainable situation. I mean,
a basic ratio they do is, youknow, how much are you paying
out and how much you taking in?
And if you're putting out morethan you're taking in on a

(25:54):
regular basis, that's nonsustainable. But a natural
question people ask is, gosh, Iwas insured Monday. I'm going to
be non insured when I renew.
Let's say it's on Friday. Thenatural question is, gosh. Megan
Spencer, what can I do? Andfrequently the answer people get
are getting back is differentversions of nothing. Doesn't
matter. Part of the reason isthat if you never really
understood the loss sequencethat I described in the first

(26:17):
phase, if you don't understandthe loss sequence, there's no
way you can really have a valuefor a mitigation. You don't know
what it does. So part of whatwe're doing here is trying to
connect how we understand heattransfer and the propagation of
these WUI configurations. How dowe how do we disrupt those?
We're doing it. We're talkingabout three fire pathways. How
do we disrupt those? And now, ifyou understand how it occurs,

(26:39):
how you can disrupt it, then thedisruptions mitigations can
become variables in theactuarial analysis of how much
that reduces the vulnerability.
Now it's almost like you'recolor blind, and now you can see
but think about it for a minute.
People have heard me say this,and I spent a lot of time in
Nevada, so I use this example,Spencer. Let's Let's pretend you

(26:59):
own. Is it still the MGM or isit something else now?

Spencer (27:04):
There's the Atlantis or the GSR.

Okay, we'll go with the Atlantis let's say
you'll say you own the Atlantis.
And I'm your floor manager, andI come in to you after a long
weekend, I go Spencer bad news.
We just lost a ton of money on,I don't know, pick your game of
chance. We don't understand theodds, the probability of loss in
this game anymore. What do youwant to do?

Spencer (27:26):
Yeah, you've got to tighten up those odds and pay
out less.

Yeah, I'm not sure the Gaming Commissioner
will let you just you know. Sothe question is, oh, gosh, we
don't know the game of chanceanymore. Do you keep playing a
game of chance you don'tunderstand? Probably not a good
idea. Okay, okay, great. That'sprudence Spencer. I got it,
although, if I look at our cashflow, I think we can only do
that strategy so long, becausewe actually, you know, it's a
significant revenue source, andit looks like Megan is still

(27:52):
playing that game of chanceacross the street, so, you know,
probably gonna lose the clientsover there. So just sitting it
out. And you saw this, right?
You saw a complete withdraw fromproperty insurance in
California, so much so that theinsurance commissioner said,
Wait a minute, I'm going to puta moratorium on that, and you
can't drop people, which you canonly do for so long. Okay so we
can't just stop playing the gameof chance. Let's see. I know

(28:17):
Spencer. Pick up the phone, callMegan. She's your competitor
across the street. Tell her youno longer understand how to run
the business such that you cancompete with her. Can she help
you out? That's probably notgoing to happen. And we have,
and in all fairness, we have,understandably have antitrust
laws and those types of things.

(28:37):
So I mean, there's, there'sstructural things that actually
keep that from happening. Okayso we can't keep playing. We
can't call a competitor. Call afriend. Should we? We'll call
the gaming Commissioner, tellthem that we don't understand
what's going on with our I don'tknow if anybody's ever done
that. I'm not sure it would betaken well, but that still
doesn't solve the problem. Doyou tell the customers when they
come in, if you publicly traded,or you have investors? Do you
tell them? I mean, it's a toughspot to be in, right? Because

(28:59):
this has been your, I mean, youryour expertise is understanding
risk, and now it's changed, andwe don't know why yet, right?
And so that's why there's this,you know, it's almost for a
while. I know I had a localinsurance carrier where I worked
loft, and he could tell me whatwas going on. And, you know, he
could, you know, this month, hecould write over here, but not

(29:21):
over here. And then a few monthslater, it flip flopped, and a
few months later, after,couldn't write anything. And
then a few months after that,everything opened up again. And
we looked at each other and Isaid, well, has anything
actually changed on the ground?
Nope. So it kind of, it kind ofhelps understand this behavior.
I mean, I don't think I could doit any differently. You know,
it's just a tough spot to be in.

(29:42):
But while I was working with theWestern Fire Chiefs Association,
I represented both Nevada andCalifornia, we'd had some of
this go on with our ISO scoringInsurance Services Office,
where, essentially they rateyour structural firefighter
ability to you know essentiallyput out what we think of as
standard issue house fires, thatkind of thing. And so I thought,

(30:03):
You know what? And the fireservice and the insurance
industry have a tremendouslylong history. If you're not
aware of it, go look it up. Thecontemporary Fire Service came
from the insurance industry, andwe're not a competitor, right?
So we started a dialog. We havea shared interest. We don't want
any losses of life or property.
So how do you go about that?
Well, you if it's an existingstructure, you mitigate it. We

(30:24):
realize it's not just theindividual structure, but it's
also the community.

Jenni Burr (30:31):
During a wildfire, firefighters have a lot to do.
Make it easier for firefightersto defend your home by creating
defensible space now. Defensiblespace is the area between a
house and an oncoming wildfirewhere the vegetation has been
managed to reduce the wildfirethreat. Proper defensible space
doesn't mean removing allvegetation, though, by following

(30:54):
the lean, clean and green rule,you can keep your property safe
while preserving its naturalbeauty. Check out our defensible
space guide to learn more. Youcan find the guide in the
resources section of our websiteat livingwithfire.org.

The idea on how do we figure out risk. We
started this discussion with,what's the risk from the fire
propagation side of the ground?
We kind of covered that nowunderstanding the risk
financially, the transfer ofrisk, is what we're trying to.
The WUI Institute is trying toconnect the and it's not just
me. I have some amazingcolleagues and other people

(31:29):
working on this. But the ideais, how do I take the best
science about what's effectivein disrupting the loss sequence
and then making that visible ina way that the insurers can
trust it and say, Okay, if thesethings are present, I know that
risk now about this time in someof my other discussions,
somebody raises their hand andthey're just all upset at the
insurance industry, you know,making money, and you know,

(31:50):
there's almost this animosity.
And I like to pause there andgo, well, first of all, have any
of you been a co signer onpersonal loan for anybody?
There's usually not too manyhands that go up, but if they
do, then I ask, Was it a familymember or someone you knew
intimately? And if it's not,lower your hand, and there's
usually no hands. And yet,that's exactly what we're doing
here, is we're, you know,imagine somebody sending you

(32:11):
1000s of letters a day wantingyou to underwrite a personal
loan for them when you knownothing about them. And that's a
little bit about what we'redoing here, because what we're
doing is by paying the insurancepremium, they're taking on the
risk that we have. And it usedto be that they thought they had
enough information to understandit, but those incremental
changes I mentioned have made itunknown or certainly less known.

(32:31):
And so they can't keep playingthat game of chance. They've got
to withdraw, but they can'twithdraw forever. So it's, I
mean, it's a real tough spot,right? So what we're trying to
do is take the best science,make it visible at the actuarial
level. I couldn't spell actuarya few years ago, and now they're
one of my closest, bothprofessional and personal
colleagues. Nancy Watkins hasbeen a real mentor for me. She

(32:53):
works for Milliman of the SanFrancisco office, and so she
provides this invaluabletranslation service between what
we know to be factual on theground, in terms of the physics
of what happens, but we have noidea how to give certainty to
that in the people that areunderwriting this for both
primary and reinsurance and soin a nutshell, that's what we're

(33:14):
that's what we're doing in themiddle, to try to connect all of
that.

Spencer (33:17):
Frank, think you could just briefly define an actuary
to the folks at home who aren'tfamiliar with that?

Oh my gosh. No pressure here, right? Couldn't
spell it a couple years ago. NowI'm going to define it for
people. In the simplest terms.
Actuaries help us understand ifthere's a value on something
that we want to cover or recoverover a period of time, what kind
of financial contributions andset aside do we put to handle

(33:43):
for a sporadic event? And it'snot just on that one policy,
it's on a whole body ofpolicies. How do we put enough
money aside to recover from anaccidental event that does
happen individually, it's hardto know. But the larger the
group size, actually, the betteryou are at it. It is a real
statistical assessment of how toprepare for future loss.

Megan Kay (34:10):
Where do they pull the data from then? So, like I'd
imagine, for certain things,they have a huge pool of data
and statistics. So in this case,where does it come from?

That is a great question. So right now, we lack
the most important data that weneed. There's a tendency by
everybody, insurance, planners,academics doing original
research, getting original datais hard work and it's expensive,
and so again, I said in thiscase, it used to be very

(34:42):
predictable. You didn't have todo anything to collect data
because you knew the losses inyour rear view mirror were so
predictable, you almost didn'treally need to know much else.
And so whatever data you had wasenough. I mean, to go study the
data more than you needed, it'salmost a kind of waste of
resource. So one of the things Ithink we're struggling with
right now is that we know fromthe conflagration loss sequence,
a lot of the data that mattersthe most isn't actually
available, and so to go get thatkind of data at the least

(35:03):
expensive, most efficient way,is currently a process of
discovery right now. It has aheavy reliance on satellites
because they're up in the air.
That's pretty easy, but it's alot of secondary and tertiary
inference about well, this houseis probably built at this time,
and when that house was built,these features were common, and
so we probably have these thingsin place. There's ways to
crowdsource data collection. Youjust have to make sure that

(35:24):
there can be quality assuranceto it. It's got to be accurate.
But I think we need tocrowdsource the data collection
at the parcel level, because Ican tell you as being a fire
chief trying to schedule thatand then reschedule it again,
and then the variation betweenone inspector to another and
homeowner to another one. So Iknow there's at least one one
service where we're using AI tointerpret the video feed. That

(35:45):
is, you know, it's choreographedfor the for the person doing it.
And it does two things. It willgo and now turn that one is the
AI is training to the IBHSwildfire prepared home standard,
so it knows what characteristicsto look for, and then find them.
And then that translates into adata layer. And the data layer,
we think should go to twoplaces. One is to what we're

(36:05):
working on is called the DataCommons, so that the insurance
industry can pull out of itwithout feeling like they gave
up, you know, proprietaryinformation or trade secret. And
the other side, we want to seego towards community wildfire
protection plans, because thatwill help inform, at least in an
ordinal level, what theconditions are on the ground.
And that will help with bothjustification prioritization of

(36:27):
mitigation dollars. Also helpsfirst responders. You know, if I
we send first responders intoI'll call it nowhereville at 2am
they've never seen it before.
You know, just go to the bigglow in the back of the sky,
good luck. And they have noinformation. But if you could
pull up a data layer that said,well, at least I understand the
basics of what's happening onthese parcels. You know, that's
helpful. So in terms of data,that's part of what a lot of us

(36:51):
are struggling with right now.
What is the best way to get themost important data in a
sustainable way that we have ahigh enough confidence level for
someone to underwrite the risk?

Spencer (37:00):
So it seems like many of the these basically 50 year
solutions of making thistransition to be in a system of
full construction and insuranceand everything that goes into
understanding and what couldcause a loss to be there. It
seems like, right now, many ofthe things you described are

(37:22):
pretty like policy and work thatactuaries and fire districts are
doing, is there anything rightnow that kind of a listener
homeowner can do to help,whether it's evolve or support
this process?

One is the insurance crisis is a symptom.
It's a symptom of a disconnectbetween risk and the pricing of
risk, and the longer we somehowsubsidize that, it just means
that we guarantee the outcomesthat we're currently not
wanting. So at some point wehave to reconcile actual risk on
the ground, the facts on theground, with how we price risk

(37:58):
transfer. And think for aminute, what happens if we, if
we can't transfer risk, becauseas the minute you get into any
kind of lending, unless you'regoing to lend it and just take a
risk every time, which isn'tvery sustainable, it means that
we, I mean the cascadingfinancial consequences. Let's
just say, in the lending marketfor mortgages, you know,
guarantee there's at least apodcast there. I think you're

(38:22):
going to start to see areconciliation between wildfire
risk and uninsurability andgeneral obligation municipal
bonds. I think we're going tostart to see a connection,
because right now, those don'ttrack very well, but we'd have a
whole different outlook at thelocal government level if your
credit rating went down, and ifyou think, if you think local

(38:44):
government, credit ratings can'tgo down, just remember, the S&P
just downgraded the entireinsurance market. So the point
trying to make here Spencer isthat I would tell the homeowners
your goal is not, actually tohave insurance. Your goal is not
to burn down your house or letyour neighbor's house burn down
your house. I mean, I want tohave health care, but it's not
so I can go home this afternoonand have a stroke and collect on

(39:06):
that care, right? I need to bedoing the things that are going
to keep me healthy. Andactually, if we all do the
things that keep us healthy, thehealth insurance isn't very
expensive, right? But if we, ifwe only look at the insurance
having insurance policy, ourhand is the end goal, we
completely miss the dynamic oflosing the structures now that
we have these changedconditions. And then beyond
that, I would tell them, pleasego look at the IBHS wildfire

(39:29):
prepared home. If you're goingto go for the designation, you
have to do all the items onthere. But you know what do what
you can, if for nothing else,look at doing what you can. But
in terms of getting thatdesignation, it has to be all or
none, and I I support that. Butstill, there's things that you
can do that will drop your risk.
And if you're not sure aboutthat, local fire services at
this point, I mean, Nevada isone of my project states, and I

(39:51):
can tell you from working withthe Nevada Fire Chiefs, they're
engaged on this issue. If ahomeowner calls up their local
fire agency, I can tell you theyare, they are working on this.
Also check with your insurer. Itdoes still pay to shop around.
There's still, you know, as thistransition processes, as the
insurers start to get more awareof the value of relative things,

(40:13):
because they don't make money bynot writing policies. They might
not lose money, but theycertainly don't make money, not
right? So they want to lean intothis. Reach out to your local
fire agency if you need help,and you have some really good
ones there, and also work withyour insurance agent if you feel
like you're really stuck withoutanything. Shop around people are
trying to figure it out on thatside too.

Jenni Burr (40:38):
84% of wildfires nationwide are caused by people.
If you're planning on headingout and enjoying public lands,
visit nevadafireinfo.org andlearn how you can recreate
responsibly and do your part toprevent wildfires.

Megan Kay (40:56):
That's great advice.
My one, I guess, follow up tothat would be, are there any
particular I mean, the IBHSrecommendation is great, but are
there any like particular thingsthat could signal to an
insurance agent or actuary thatthe homeowner understands these
mitigation practices

Right now, it's really hard because remember,
the person you're dealing with,you know your underwriters and
you know even a broker, they'rereally stuck with the rules of
engagement that their corporateentity has set. And above that
is, can they get reinsurancecoverage, and what does that
cost them? Because that passthrough cost has to come. So one
of the real tough spots is youmay do all the mitigation and

(41:36):
still have your rates go up,simply because the reinsurance
portion is not picking up justwildfire. It's picking up global
hurricane loss, sea level rise,convective storm, all these
other things that are inextremis. So when you see a
massive loss down in Texas,barrel, no wildfire problem
there, but you know what? It'scoming out of the same risk

(41:58):
pool. Indirectly.

Spencer (41:59):
I'm just trying to think through distilling all of
this. I think if someone askedme, like, if I go do all of my
defensible space in homehardening my insurance rate,
didn't recognize it. We couldsay like, Please continue to do
those things because they'remore likely to keep your home
from burning, which isultimately what you want from
the insurance side of things,have changed a bunch in the last

(42:22):
decade or more, so that ourrisks and losses are higher. We
are still working to figure outthe fine scale data of what
actually affects those thoserisks and losses, so that the
insurance companies and all thepieces in there can know how

(42:43):
much they actually have tocharge to cover the losses all
the way through, from insurancecompanies to reinsurance, that's
going to take some time tofigure out, and then create all
the policy pieces and relay onto what people, how we how we
evolve In this new fireecosystem that we're going to
experience, that could be a 50year transition, and then when

(43:07):
we're there, we might be able tohave fewer home losses, these
great things like insurancereflecting work that you've
actually done. How does thatsound? Or are any holes or
things I misrepresented there?

I think the challenge, and you're actually
more articulate than I am, theygo to screensaver on me pretty
quickly, and it'sunderstandable, right? People
are trying to get to their jobs.
They're trying to get kids toschool. I mean, they've got, you
know, they've got a lot of otherthings going on, and so
committing to do extra workannually around your home to
keep it fire safe, we you andme, have to figure out, how do

(43:41):
we make that case in a realsense? Because having fire at
your house is theoretical, uh,having to do the work is real. I
don't know if you were going toput it in an investment
standpoint. You know, a lot ofus, if we have retirement
accounts, 401k, something likethat, you kind of just, you
know, you put money into it, youtrust it. You've got financial
advisors, and you, you kind ofcan go on autopilot, right? But

(44:02):
if you knew, if somebody cameout and said, Hey, look, you
know, if you're if you start tosee retirement accounts go
south, like the last recession,people start to plug in pretty
quickly and realize, Okay, Igotta get my hands back on the
wheel. I can't, I can't drive onautopilot here. I've got to
engage. And I think my advice topeople would be, if there was
ever a time for you to spendmore effort on protecting your

(44:27):
home, it's now because this isnot a pleasant idea, but because
the fire and insurance officialsare trying to figure out what we
need to do to make you safe atscale, and we know the basics,
but doing it at scale is thehard part, and so be more
vigilant now than ever. Youknow, I don't know if you if the
electric company said, I justwant you to know electricity is

(44:48):
traveling different than we everthought. So what we thought was
grounded and safe isn't, or ismost of the time, or maybe not.
Be really careful. You know, payclose attention to what you're
doing. I mean, if you, if youshare that with people, it
probably you know, we have tofind a way to say you need to be
hyper vigilant during thisperiod, because the normal
systems that would just makerecommendations and you could

(45:09):
follow them and and go aboutyour day, we're in a transition
of what we thought we knew froma legacy standpoint, and we're
having to create this new way tomitigate those so I would just
say it's now more than ever thatdoing the things to protect your
home during wildfire season,which is just about the whole
year, some of my worst fireseven there, you know those cold

(45:30):
fronts in January, February, andthen it snows right afterwards.
So I know that's not verycomforting, but you know part of
us being effective, and you aseducators, we have to be
genuine, like, don't tell themit's a blue sky. If there's a
tornado about to drop, this isnot a blue sky. This is a pretty
scary time.

Megan Kay (45:51):
Well, you've given me a little bit of, not a little
bit, but you've given meconfidence in my answer to folks
when I'm out and about, what Iget a lot is, you know, I did my
mitigation, I got dropped.
What's the point? You know,what's the point of doing this?
A lot of people say that. Theysay, what's the point. And so,
yeah, now I feel like my answeris going to be like, so your
house doesn't burn down, becauseit's important. It's more

(46:12):
important now than ever.

Right? Because if you don't have the insurance,
I mean, is that a risk you wantto take? No, there's ever to do
it. It's when you're you knownow you're underinsured or
uninsured. The truth is, if welost the insurance industry,
insurance no longer existed, wewould behave differently. You'd
read about two or three storieswhere people lost everything,
and you would, you would, youwould do some additional work

(46:37):
around the house.

Spencer (46:38):
So we're in a discovery phase, trying to understand what
what do we need to focus on, andwhat are the key things we're
figuring it out.

I think so I like to think of it as a
transition phase. Yeah, that. Imean, we're going from a place
we understood to a place wehaven't arrived at yet. We just
know that it's going to bedifferent. And so I can tell you
firsthand, nobody has this allfigured out right now, or they
would be insanely rich andmonopolizing the market. So I
think, yeah, that's a good wayto word it Spencer is that it's

(47:07):
discovery. I'm gonna call ittransition, because I it's not
like we're sort of blindly goingin and we're into the
wilderness, discovering things.
We actually have some structurein it. And so we're
transitioning from the way weused to do it kind of legacy
thinking into what's going towork in a future that, you know.
And this is a little depressing,but I'll, I'll say it is that,

(47:27):
you know, reading through thescience of some of our best and
brightest, when we look at thescience in there, our planning
assumptions are in the very nearfuture. And I don't think we're
10 years away from it. It's, youknow, could start tomorrow, but
we'll hit a period of about fivedecades where our average annual
acreage loss in the western USwill be 250% of 2020 that is,

(47:50):
that is a that is a future wecan't imagine. So there's a
clock ticking there on how toget these mitigations, because
if the longer we wait, the worsethe conditions are going to be
that we're going to try to getthese done under, I feel like
nationally, probably globally,but certainly nationally, we're
going through a grievingprocess. We all had an idea. I

(48:10):
did up until 2015 of what thefuture probably looks like, and
it's not what I imagine. And Ithink we're grieving that loss.
And if you think about was itKubler Ross, I think, you know,
denial, anger, bargaining,depression, finally, acceptance.
I think we have to work our waythrough that. And so I would end
the podcast on the idea that Ithink we can do this. We've

(48:33):
shown an ability to do it. Wejust have to understand this is
a long term process, and we haveto commit to it, and we've
always admired evolution andadaptation. We look backwards in
history. We just think that'sgreat. We marvel at it. Well,
it's our turn to evolve. Itdoesn't look so fun now that
we're in the middle of, youknow, survival of the fittest.
And how do we adapt to this new,changing environment? But it's

(48:56):
our turn to adapt. I think wecan do this. We just have to get
past the denial.

Megan Kay (49:01):
Thank you for listening to the Living with
Fire Podcast. You can find morestories and resources about
wildfire at our website,livingwithfire.com the Living
with Fire Program is funded bythe Bureau of Land Management,
the Nevada Division of Forestryand the US Forest Service. And
we're managed by the Universityof Nevada, Reno extension, an

(49:24):
equal opportunity institution.

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}The Insurance Dilemma Part 2: Defining Risk