A Wildfire Vulnerability Index for Businesses Using Machine Learning Approaches

Climate change and housing growth in ecologically vulnerable areas are increasing the frequency and intensity of wildfire events. These events can have profound impact on communities and the economy, but the financial and operational impacts of wildfire on businesses have not been evaluated extensively yet. This paper presents a Wildfire Vulnerability Index (WVI) that measures the risk of a business failing in the 12 months following a wildfire event. An XGBoost algorithm champion model is compared to two challenger models: 1) a model that extends the champion model by incorporating building and property characteristics and 2) a model that utilizes a neural network approach. Results show that while all models perform well in predicting business failure risk post-disaster event, the model that uses building and property characteristics performs best across all performance metrics. As the natural environment shifts under climate change and more businesses are exposed to the consequences of wildfire, the WVI can help emergency managers allocate disaster aid to businesses at the highest risk of failing and can also provide valuable risk insights for portfolio managers and loan processors.