Insuring Southeast Asian commercial forests: Fire risk analysis and the potential for use of data in risk pricing and reduction of forest fire risk
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.
Fires in Indonesia: causes, costs and policy implications
The report starts by consolidating information on the extent and location of fires. Then it focuses on the definition of the policy problems. Some of the major apparent causes of the problems are highlighted by pointing out the land use activities contributing to the fires. The underlying causes to the fires in the various land use activities, such as the institutional arrangements and the incentive structure faced by the stakeholder in using and/or controlling the fires, are not analyzed. That analysis is beyond the scope of this report, but it is essential for a development of appropriate policies; therefore it will be the focus for further research. A review and analysis of the economic impacts of fires is then carried out. The reports pays particular attention to the economic assessments of costs caused by the 1997/98 fires. Therefore, the report seeks to provide more reliable estimates and comments on their use in future studies aimed at assessing detailed policies.
Fires in Indonesia, 1997: a remote sensing perspective
This paper presents a study of the 1997 fires in Indonesia, which was undertaken during October and November 1997, partly to assess the extent and nature of fires during August and September, and partly to undertake real-time monitoring of the fires. Data, mainly in the form of satellite imagery and image products, was obtained from local receiving stations and through the Internet. The distribution of fires in time and space has been assessed, mainly using indicative "hotspots" from NOAA AVHRR and ERS-2 ATSR imagery. A rough assessment of areas burnt in southern Sumatera up to the end of September 1997 has been undertaken using SPOT digital quicklook imagery, and vegetation classes burnt assessed by interpretation of preburn satellite imagery, where available. Major fires started in southern Sumatera and southern Kalimantan in early August 1997 and continued to burn until the second week of November, when they appear to have been extinquished by the arrival of substantial rain. Fires have also burnt for much of this period in southeastern Irian Jaya. The total area burnt in Sumatera Selatan and Lampung provinces of southern Sumatera alone is estimated to be about 1 mill. ha, and the total in all of Indonesia is in excess of 2 mill. ha. Most of this area was not forest, but scrub, grassland and agricultural lands. The most persistent fires, and the source of probably 90% of the smoke haze which blanketed parts of Indonesia and surrounding countries, were 7 clusters of fires along the edges of degraded peatswamp forests in southern Sumatera and Kalimantan. Almost no fires occurred deep within undisturbed primary forest, and most were associated with land-clearing for new settlements or plantations, or with logging operations.