The risk landscape is seemingly ever-expanding. While the insurance industry faces the familiar — yet more costly — severe weather activity, there may be new risks emerging below the surface and above the atmosphere. From supply-chain chaos and soaring reconstruction costs stemming from wildfires across North America to the potential long-term effects of a warming planet, these three emerging risks may impact insurers this year and beyond.

Canadian Wildfires May Fuel Rise in Reconstruction Costs

The historic wildfire season in Canada has affected residents all across North America, driving massive plumes of hazardous smoke through a swath of the United States. Residents on the East Coast, who typically don’t experience the effects of wildfires, began checking their local air quality index as, for a moment, cities such as New York, Philadelphia and Washington, D.C., had the worst air quality in the world.

Beyond the eye-watering air lies a potential impact for some insurers: rising lumber costs.

The U.S. generates 60-70 percent of its softwood lumber domestically and imports the rest. The vast majority of those imports come from Canadian suppliers. The fires have directly impacted that country’s prodigious forestry industry — closing sawmills and driving lumber prices higher.

Rising lumber prices could significantly impact reconstruction costs many months after the fires ultimately subside.

In 2017, lumber costs skyrocketed by 14 percent following similar fires, according to Verisk research. This spike in the cost of lumber helped nudge year-over-year reconstruction prices up to 4.8 percent nationally, a jump from a general average of around 2-3 percent since 2015. This trend carried over into the following year, with prices in lumber and reconstruction costs finally subsiding roughly a year after the end of the fire season.

The price of lumber per thousand feet has rebounded in the weeks following the Canadian wildfires, and the cost of lumber in Hawaii — where the price for building materials is ordinarily 35-40 percent greater than on the mainland — is likewise anticipated to surge following the Maui fires.

If the past is prologue, lumber prices — and reconstruction costs — may start to climb this fall and continue to increase through the summer of 2024.

Potential Solar Flare Losses Are Out of This World

Space weather isn’t just an astrophysical curiosity, it can lead to potentially significant insurer losses. Research published by Verisk’s Emerging Issues team showed that an extreme space weather event of the kind that impacted the Earth in 1859 could trigger insured losses ranging between $53.2 billion and $323.9 billion.

And we appear to be entering a more dangerous period for space weather events.

Every 11 years or so, the sun’s magnetic field flips in a process known as the solar cycle. Just as hurricanes have their turbulent seasons, the sun also experiences a disruptive and potentially destructive leadup to this momentous magnetic maneuver known as a “solar maximum.”

The solar flares and related space weather produced during this transitional cycle can potentially damage satellites and impair electrical grids, leading to possible interruption of radio communication and air travel and a variety of climate impacts.

Scientists can typically project the approximate timing of these solar seasons. The next cycle is anticipated to occur around 2025 or 2026. However, the recent uptick in solar weather has caused some experts to question the previously agreed-upon consensus.

Indeed, according to data from the Space Weather Prediction Center, the actual F10.7 index — a widely used diagnostic measuring radio waves emanating from the sun — has been trending higher in recent years than experts had previously predicted, indicating more intense solar activity capable of creating disruptive geomagnetic storms here on Earth.

Will Underground Climate Threats Surface?

While climate change is usually associated with rising sea levels and increasing surface temperatures, there may be a subterranean climate threat that property insurers should consider.

Researchers from Northwestern University recently reconstructed ground temperature variations from 1951 through the present day in various locations in Chicago. Through this work, they modeled the ways in which underground temperatures could evolve through 2051, generating simulations suggesting that warmer sub-surface temperatures could trigger ground swelling and expansion of up to 12 millimeters. It may also cause the ground to contract and sink beneath the weight of surface infrastructure by up to 8 millimeters.

Though these shifts in soil and stratum temperature may not trigger sudden building collapses, the researchers warned that they could pose long-term consequences for “serviceability of structures and infrastructure.” That’s partly because modern infrastructure and property were not necessarily designed to accommodate ground deformations caused by rising sub-surface temperatures. Structural damage anteriorly ascribed to design flaws may have been exacerbated in part by unseen climate change beneath our feet.

While a cause for concern, the researchers additionally noted that this heat could potentially be trapped and used to heat the buildings above them rather than escaping into (and deforming) the ground around them.

Each of these risks has a different time horizon — lumber prices for the near present, solar flares in the near future, and underground climate in the long term.

One thing is certain: The risk management landscape is evolving.

*This article was originally published by Insurance Journal, CM’s sister publication.