Why insurers should include climate risk in modeling: SOA

Twenty-one years of satellite data show that wildfires are becoming more frequent, intense, and larger, driven primarily by climate change-induced drought and atmospheric dryness, according to research by NASA.

Additionally, U.S. Forest Service scientists found that fire seasons are lengthening, starting earlier in the spring and lasting later into the fall. Specifically, weather data revealed that fire seasons in parts of the Western U.S., Mexico, Brazil and East Africa now last a month longer than they did 35 years ago. 

Wildfires leave destruction far beyond what the flames consume. Wildfire-related air pollution contains a mix of chemicals that react in the air and form tiny particles. Fine particulate matter that is less than 2.5 micrometers wide (PM2.5) can penetrate deep into the lungs and enter the bloodstream, potentially causing a range of health problems. Wildfire-related air pollution can also travel great distances, affecting air quality in places far from the fire.

The SOA Research Institute has studied how exposure to wildfire-related air pollution impacts morbidity in the U.S. The findings also indicated lagging effects on human health.

New risks call for new approaches

Rising climate risks, including wildfire-related air pollution, are creating new challenges for insurers. Wildfires and extreme weather can add uncertainty to health care use, claims, premium pricing and regulatory policy, increasing the value of adapting how insurers assess and manage risk.

Wildfire-related air pollution, especially when combined with extreme heat, may increase claims volatility. As discussed in the report, these effects vary by geography and social determinants of health. Combined with ongoing uncertainty in medical cost trends, these risks highlight the need for actuaries to consider new approaches to measuring risk and setting appropriate contingency loadings.

SOA Research Institute studies suggest that climate-related events can have effects that extend well beyond the initial event, contributing to long-term health impacts. Incorporating climate risks into modeling and pricing can help insurers better anticipate and manage their potential health and financial impacts.

Impacts extend far beyond the fire zone

The SOA Research Institute's Impact of Wildfire-Related and Environmental Air Pollution on Morbidity report, provides frameworks for actuaries and researchers to better understand and model mortality due to air pollution influenced by wildfire smoke and other factors. 

This wildfire-related air pollution increases the prevalence and severity of health conditions, particularly cardiovascular and respiratory diseases, and this, in turn, increases mortality in the medium to long term.  

Findings from the research found that wildfire frequency and area burned in a state are not reliable indicators of air pollution–related death rates. PM2.5 can travel long distances, exposing populations far from the wildfire itself and weakening the relationship between local wildfire activity and pollution-related mortality. In addition, the health effects of PM2.5 often emerge months or years after exposure, which creates a disconnect between when wildfires occur and when their health impacts are detected.

The SOA Research Institute studies provide valuable evidence on wildfire-related PM2.5 health and mortality impacts, but data limitations and complex relationships warrant caution and further research on long-term effects.

Health risks due to wildfire-related air pollution

The larger mortality impact of wildfires occurs indirectly through air pollution and associated long-term health outcomes rather than by the fires themselves.

According to the report, exposure to PM2.5 during wildfire season can contribute to a range of health conditions.

When combined with extreme heat, the effects can be especially significant. The study found that 2.3% to 8.6% of disease prevalence for the conditions studied were associated with PM2.5 exposure during wildfire season and its lagged effects, combined with extreme heat and its lagged effects. That is roughly 2 to 9 out of every 100 cases, an impact that can rival or exceed the effects of COVID-19 and its aftermath. The impacts include mental health issues as well. The study found that the combined effects of exposure to PM 2.5 and extreme heat accounted for 6.7% to 7.8% of mental health and behavioral disorder prevalence.

The health effects of wildfire-related air pollution persist for months and, sometimes, years after exposure. While respiratory conditions (e.g., airway inflammation) rise immediately, circulatory and mental health issues peak months later, consistent with longer-term systemic and neurological effects.

The study also found that wildfire-related air pollution doesn't affect everyone equally. Communities with less access to health care, more chronic health problems, and greater social and economic challenges tend to get sicker when exposed to wildfire-related air pollution than people in better-resourced areas.