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'New normal' California fires expose modelling gaps: AM Best

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The California wildfires now burning across the state are a “new normal” that will require insurers to reconsider their risk assessment of the peril, according to AM Best.

A statewide emergency was declared more than a week ago as millions of people were forced from their homes.

While the blazes are not as severe as last year, AM Best believes the catastrophe once again highlights the urgency for improved modelling.

“Although catastrophe modelling firms are adjusting to the new normal based on recent events, the modelling techniques for this peril remain less sophisticated than for hurricanes and earthquakes,” the ratings agency says.

“In addition, the growth of housing in the wildland-urban interface and weather conditions that caused embers to spread further than anticipated drove losses in areas that had historically been viewed as having relatively low wildfire risk.

“Given that some of these wildfires are now occurring in areas classified as low to moderate risk, risk-scoring models may need to be adjusted.”

AM Best expects the event to put upward pressure on reinsurance prices in loss-affected areas.

This is the third consecutive year that extreme wildfires have hit the state.

The Insurance Information Institute puts the insured losses from last year’s catastrophe at more than $US15 billion ($21.7 billion).