Story of Chestnut
Five years ago, my co-founder (Nilgun Dag) and I started a company called UrbanStat.
UrbanStat helps insurance companies to understand catastrophic or human-made events better using location intelligence, visualization, and machine learning algorithms. Companies like Sompo Japan, Ageas, Allianz, Safety Insurance, and many more are using our platform today to manage their portfolios, underwrite their customers, and design better products for people and businesses.
Since early 2018, we have been receiving questions about wildfires from insurance carriers. In the past, wildfires were still occuring, but they were not impacting the insured properties to the effect that they are today. Wildfires were not a major problem for insurance companies until 2017, which was named the most destructive wildfire season in California. 9,133 fires burned 1,381,405 acres and destroyed or damaged 10,000 structures. Needless to say, the industry didn’t really care about this problem until now. The wildfire phenomenon is something they don’t understand yet. This is why they don’t know how to approach the problem.
On December 2018, Joyce Howard, a broker in Auburn explained:
All these major companies started pulling out quietly. People got non-renewals; people got flat-out canceled. There are companies that are still doing that today.
On May 2019, Christopher Kerksieck, a Farmer Insurance Agency Owner stated:
Generally, it’s two to three times higher than the premium that they were paying before
explaining premium surcharges on homeowners / fire insurance.
On May 2019, Becca Habegger reported on ABC10:
Some Californians trying to get ready for fire season by buying fire insurance are finding that they can’t — because their carrier isn’t offering it to them anymore.
Newspapers, magazines, news sites, and social media are full of similar experiences. Californians are facing a major insurance crisis which is expected to only get worse.
With the intention to help insurance carriers, and indirectly help the people, we have decided to implement a new wildfire risk map for California. After a year long R&D, we have released our wildfire map for California during the Spring of 2019. The problem with current maps is that they are based on simple statistical methodologies, limited variables (often the unnecessary ones), and sometimes rule based decision processes. Let me explain this in more detail:
Wildfires can start from any number of reasons. Arson, lightning strikes, failing power infrastructure (e.g. Camp Fire), shattered glasses, forgotten campfires and so on. Once a fire starts, it can accelerate based on any number of factors: vegetation (often referred as fuel), temperature, winds, precipitation, humidity, slope (topography of the area) and so on.
When we look at current approaches, we immediately see that a limited number of factors are being incorporated to the wildfire maps/models:
- Slope
- Vegetation (Fuel, bush etc.)
- Access to roads
- Access to fire stations
However, our research shows that we can easily include over 20+ variables to modeling process.
We have sourced the data for the last 80 years of wildfires in California. We also have sourced over 20 different variables that could explain why wildfires are starting in a specific area. Our model has used the first 60 years of wildfires to learn and validate (training/validation), and the last 20 years of wildfires to test its ability to predict unseen data (blind test). We have carefully validated our model using several validation techniques, but I won’t go into details on this post.
The result of this process is the map below:
This map is nothing but a fancy visualization unless the numbers behind it are explained. In order to evaluate the performance of this map we have compared it to only publicly available map that is provided by US Forestry / USGS. Both US Forestry and UrbanStat have classified around 35% of California as High or higher risk when it comes to wildfires. In UrbanStat’s case, High, Very High, and Extreme makes up around 36% of California.
Our Evaluation
The simplest thing we could ask ourselves was how this map performed on a data it has never seen (which is the last 20 years of wildfires), and we did the same evaluation against US Forestry’s map where they actually used the last 20 years of data to improve their map.
What percentage of the areas that burned in last 20 years was classified as High or higher risk when it comes to wildfires?
This analysis proves that UrbanStat’s map was almost 50% better than the US Forestry’s map when it comes to explaining the wildfires.
According to UrbanStat’s map, Camp, Saddleridge, and Kincade fires all started either in High, Very High, or Extreme risk areas and they primarily spread through similar areas.
What’s Chestnut?
Chestnut is our response to the crisis in California. We have created this product due to the unwillingness of insurance companies to solve this financial crisis. We picked the name Chestnut because the American Chestnut tree has an amazing story about loss, adaption, and perseverance, just like the victims of wildfires.
Chestnut is better at understanding the risk of wildfire and therefore it is better at pricing the risk for insurance providers. UrbanStat has been helping insurance carriers around the world to manage their portfolio better for years now. UrbanStat’s ability to underwrite and price better will enable Chestnut to provide a much needed financial relief to victims of wildfires. More than half of the claims are still open (unpaid) after the wildfires in 2018.
Our plan is subject to change, but our goal is to implement a financial product that will pay up to $20,000 within days after a wildfire. We plan to cover following damages:
- Damages to your house, personal property, vehicles, landscaping, and other structures
- $100/day you are away from home due to forced evacuations up to 20 days a year
- $100/day you spend in a hospital up to 20 days a year
- $50/day your home is out of power up to 10 days a year
Chestnut is not a replacement for your home insurance. However, it will help you reduce your home insurance premium and, in certain cases, it may be the only solution that you have access to, with home insurance plans proving difficult to get in California every day. We are taking the necessary steps to ensure that Chestnut complies with all regulatory agencies. We appreciate your patience as our product needs time to be released fully. Insurance is a highly regulated industry and we are working relentlessly to get this ready before the next wildfire season. Until then, we’ve decided to open our risk map to public, so you can analyze your property’s wildfire risk now.
For free wildfire risk analysis: analyze.getchestnut.com
For more information: getchestnut.com
Anil Celik
