Insuring Southeast Asian commercial forests: Fire risk analysis and the potential for use of data in risk pricing and reduction of forest fire risk |
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Authors: | Phil Cottle |
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Institution: | (1) AgroForest Risk Management, Crosby Court, 38 Bishopsgate, London, EC2N4DT, UK |
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Abstract: | The author uses his own data gleaned from over 10 years of commercial forestry insurance across the world to propose that
despite a low intrinsic fire risk across most of Southeast Asia, especially Indonesia, commercial fire losses are unacceptably
high, and could be reduced substantially within the current financial legal and political framework within which forestry
companies operate.
Opening with a statement about the dearth of forest fire loss data in the commercial sector, it is observed that the consequent
inability of general insurers to estimate the rate of fire loss leads to very low insurance participation in forestry within
Indonesia. A summary is then provided of the financial and environmental benefits of insurance participation in commercial
forestry were this situation to be changed.
A short discussion on risk perceptions is introduced to make the point that without reliable commercial forest fire loss data,
risk perceptions of fire exposure in Southeast Asia by the financial sector, including insurers, is a barrier to risk transfer
and investment. While real fire risk and perceived fire risk for Indonesia seem at present to be in agreement, the paper challenges
that this should the case.
Comparisons are made with different parts of the world with the knowledge that, in commercial terms, plantations in the low
latitudes behave similarly everywhere in terms of fire causes, fire propagation factors, and characteristics of plantation
or managed mixed forest fires. A review of the fire sizes within commercial forests is a good indicator of the efficiency
of fire management strategies, and profiles from a high fire risk territory and Indonesia are compared.
Using commercial and unidentified data the author then demonstrates that commercial growers in Indonesia have a high annual
rate of forest fire loss and may also have a significant catastrophe fire exposure. This ‘cat’ exposure is far greater than
for equivalent plantations in clearly higher fire risk environments. These conclusions are and should be discussed with forestry
companies to change attitude and investment levels.
Practical points for improved plantation fire management are made along with comments about the resources required. A parallel
discussion then reviews fire risk assessment and management by the insurers to prevent their own ‘forest fire’ losses if they
are to get further involved with the provision of Indonesian commercial forest risk transfer. The explanation of how insurers
price risk within a portfolio helps identify the specific data needed for a proper risk management strategy to be developed. |
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Keywords: | Sumatra Forest fire Risk probabilities Forest insurance Catastrophe losses Plantation fire Acacia mangium Chilean forest fire risk |
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