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Alberta wildfires - dowsing the fires

29.07.2016 Insurance

Kiran Soar

Kiran Soar Partner

Rain has finally allowed Alberta to start defeating the most damaging wildfire in Canadian history.  Burning from 1 May 2016 and only coming under control in mid-June, it has resulted in estimated insured losses of C$5 billion. 

Many of the facts and figures emerging from the Fort McMurray fire are staggering.  The fire managed to cross the 1 km wide Athabasca River; it temporarily stopped the production of over 1 million oil barrels per day (nearly 30% of Canada’s output); nearly 6000 square kilometres of Alberta (2,300 square miles) and neighbouring Saskatchewan have burned; and parts of Fort McMurray itself have been razed.

The cause of the fire has not been finally determined (though on 15 June the Royal Canadian Mounted Police stated that the fire was most likely caused by human action).  What is known is that the fire started about 15 kilometres from Fort McMurray and grew exceptionally quickly as a result of record-breaking temperatures accompanied by very low atmospheric humidity.  Winds gusting to 45mph meant that firefighters had little chance to contain a fire that raged across forests dried by an unusually arid winter.  As Darby Allen, the local fire chief said: “The way this thing happened, the way it travelled, the way it behaved – they’re rewriting their formulas on how fires behave, based on this fire.”

The impact of climate change is controversial and although it is wrong to ascribe individual fires to a warmer climate, the trend is tolerably clear.  As Mike Flannigan, a wildfire researcher at the University of Alberta explained:  “There’s a lot of year-to-year variability in area burned, but we have doubled since the 1970s and the last three years have been very active fire years. We typically burn more than 2 million hectares (7,700 square miles) a year now, which is half the size of our province of Nova Scotia. Right now, we have two or three bad fire years in a decade; by mid-century I expect four or five bad years in a decade.”

While the business interruption sections of property policies for the oil production facilities are likely to be the focus of most of insurers’ attention, other issues are likely to emerge.  We understand, for example, that otherwise undamaged homes have been declared uninhabitable as a result of contamination from arsenic and other heavy metals. Therefore, while it does not appear that the blame for ignition is (for the present) being laid at the door of utility companies with large liability programmes (as we have seen, for example, with the Californian and Australian wildfires of years past), pollution liability programmes might yet become engaged.  Combined with losses from other insurance programmes ranging from residential and commercial property to even loss of data and records for some of the businesses based in Fort McMurray, the fire will likely present the insurance market with difficult issues for months to come.

Article authors:

Kiran Soar

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