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A Real-World Insurance Learning Laboratory

Author: John Putnam

Although May is the National Wildfire Awareness month, June is the month that brings back memories for me of the two most catastrophic wildfires in Colorado's history (based on insured losses):

  • Waldo Canyon (2012), and
  • Black Forest (2013).

Both wildfires erupted within ten miles of my home, destroying over 800 homes. Within three days of the Waldo Canyon fire, Colorado Springs formed a public-private partnership (P3) team to direct the recovery. I was asked to serve as the insurance consultant because I was a semi-retired agent with no company conflicts of interest.

Wow, little did I know that this volunteer involvement would provide the personal and professional satisfaction that resulted from 1200 volunteer hours helping over 200 Waldo survivors with navigating their claims through the insurance system. A little less than a year later, the Black Forest wildfire broke out and the County elected not to form a P3 recovery team, but I was still involved with helping some of that fire's survivors because the County had retained consumer advocates to fill this role.  

In this article, I want to share four major lessons that I learned from these real-world learning experiences to increase the wildfire awareness of my fellow agents.

First, each wildfire has different characteristics which affect not only how they are fought but also how agents and the industry must prepare for them and respond. Prior to my involvement with the Waldo team, I had seen single family home fires both as an adjuster and as an agent, but I was not prepared for the destruction and randomness of this wildfire.

The collapse of a pyrocumulous cloud that created hurricane force winds resulted in the total loss of 347 homes in less than four hours. The record drought that Colorado was experiencing at the time was also a contributor. As I have followed other wildfires since 2012, there are continuing lessons learned:

  • While many wildfires occur in forested areas [the so-called wildland urban interface-(WUI)} in which people are living, they can also occur near prairie areas (prairie urban interface aka PUI) as witnessed in other less forested areas since 2012.
  • Although many believe wildfires occur only in the western United States, many other parts of the country that have experienced wildfire in the past five years such as Tennessee and Florida. Historically, Maine and Wisconsin have experienced very catastrophic fires. Interestingly, some observers consider the Pine Barrens area in New Jersey as one of highest risk areas in the country, most likely due to its proximity to populated areas.
  • Wildfire losses can be reduced when homeowners practice good vegetative mitigation, proper maintenance and housekeeping around your home, good zoning, and making use of ignition-resistive construction.

Takeaway: All agents must revisit the major catastrophic perils that are increasing in frequency and severity so they are better able to protect their customers and can better communicate the growing importance of preparing for them.

Second, insurance to value (ITV) plays a significant role in wildfire events where total losses are the most common outcome. Although I did not keep meticulous records on the limit adequacy following the Waldo fire, I estimate that a majority of homes Coverage A limits were approximately 15 percent too low.

Fortunately, ordinance or law coverage and extended replacement cost additional coverages were able to fill some of this gap. But perhaps, the biggest assist was the local contractor's appetite for business following four to five years of the national recession. The wildfire survivors were able to work with these contractors to get their homes rebuilt. Remarkably, within three years of the wildfire, 90 percent of the neighborhood was rebuilt, which is very uncommon following wildfire events.

Victims of the Black Forest wildfire were less fortunate for a variety of reasons and their rebuild has stalled at approximately two-thirds recovery six years after the event. Why did this happen? There are many probable reasons, but I would point to three major contributing factors:

  • Black Forest is a higher public protection area with higher rates and Coverage A was probably at least 20-25 percent too low.
  • The zip codes used to calculate replacement costs are similar to those for the City of Colorado Springs but the replacement costs are higher due to greater distances workers and supplies must travel.
  • By the time residents were prepared to rebuild, the local housing construction market was booming due to the Waldo Fire combined with the growing local economy so there were not as many builder discounts available.

Two additional comments regarding limits:

  • With replacement cost on personal property often at 70 percent of Coverage A, it would seem these limits are adequate to cover these losses. I was amazed to see that approximately 20 percent of insured's personal property losses exceeded this limit and 60 percent exhausted their policy limit.
  • Very few insureds had scheduled fine arts which caused them to be underinsured for these items.

Takeaways: Agents need to re-learn ITV with the goal to minimizing any gaps between the actual cost of rebuilding the insured building and the insured amounts.

Third, as a primarily commercial lines agent, I did not realize the great variability in personal lines policies, especially the HO-3 form. After working with and reading the policies of approximately 200 Waldo victims and 100 Black Forest survivors, I was amazed to find great differences among Homeowners insurance policies. Although there are many similarities, there are important differences in coverage if you read the policies closely. Here are examples of some of the differences that I found:

  • Which codes trigger ordinance or lawthe codes in place at the time of the loss or those in effect at the time of rebuild?
  • What time limits does an insured have to replace their dwelling and contents in order to make certain replacement coverage is paid?
  • Is the extended replacement cost additional coverage an automatic coverage or does it need to be added?
  • Is the additional living expense paid on an actual-loss-sustained basis for a certain time limit or are they subject to a specific limit?

Due to some of these variations, the Colorado legislature passed the Homeowners Insurance Reform Act of 2013 to legislate minimizing some of these differences.

Takeaway: Front line agents need to continually read the policies they are selling and the ones they are replacing to make certain they are providing their customers with the coverage they believe they are providing.

Finally, it is important to reflect on the two critical roles that agents perform in a wildfire catastrophe. First, we guide our insureds into purchasing the correct coverage and limits to help them prepare for a potential catastrophe. In addition, agents can be a great community source of information to assist their customers in mitigating the potential for these catastrophic losses. Secondly, agents and the insurance industry play an important role as second responders" to facilitate the post catastrophe recovery.

Takeaway: Agents are more than salespersons. If they have done their job correctly, they are an important element in the recovery process following any catastrophe for which they have written insurance.

When I was asked to join the Colorado Springs Together team (the P3 recovery group), I had worked as an agent or adjuster for 44 years and assumed I knew a lot about insurance. While this experience was a great asset in helping in my team role, I was amazed at how many new things I learned about how insurance works in a post-catastrophe recovery and how critical we are to the survivors in getting their lives back on track. In many respects, this experience has resulted in a learning renaissance for me since the new world of extreme weather is requiring new skills for addressing both the preparation for and recovery from these events. As part of my continuing education, I value your feedback and experiences from similar events. My email is

Catastrophic events will not happen to most of our customers or fellow agents. However, we too need to be prepared to respond to these insured events as we would expect from any first responder. Commit to continual learning regarding all natural catastrophes to better serve!

Last Updated: June 7, 2019

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