If insurance payouts for California wildfire damage reach $1.5 billion, the ultimate economic benefit to the state's economy "could total $3 billion to $4.5 billion," according to an economist.

That analysis came from Robert Hartwig, president of the Insurance Information Institute in New York, who called insurers "economic first responders"

Meanwhile another rating group said that property-casualty insurers should be unaffected even if the insured loss from the fires is $1.6 billion. Modeling firms have estimated the loss will range between $900 million on $1.6 billion.

Mr. Hartwig said that each dollar paid to policyholders will ripple through the California economy, having an impact two to three times as large as the original amount paid for the claim.

In a statement, he explained that such an economic impact will result because contractors, retailers and others from whom goods and services are purchased will have incomes rise and will increase their spending accordingly.

"The ultimate economic benefit to the California economy could total $3 billion to $4.5 billion if insurance payouts reach $1.5 billion," he said.

In his view, "The California economy is about to receive a much needed injection of insurer capital that will help revive its construction and homebuilding industries, boost the retail, service, hotel and restaurant sectors, and in turn increase tax revenues for local, state and federal governments."

He noted that the state "lost nearly 30,000 construction jobs in the 12-month period ending in September 2007. Overall, the state's unemployment rate rose from 4.8 percent to 5.6 percent during that time."

While the wildfires "were undeniably a tragic event, the rebuilding, repair and clean-up that follows will at least provide employment to thousands of Californians for many months to come," said Mr. Hartwig.

He mentioned that homeowners policies also include a provision paying for the additional costs of living away from home if a policyholder cannot remain there due to damage from a fire, storm or other insured disaster; it covers hotel bills, restaurant bills and other day-to-day expenses incurred while a policyholder's home is being rebuilt.

I.I.I. said that in California, additional living expense coverage may also provide reimbursement for those who were forced to evacuate by civil authorities, but whose homes were not damaged by the fire. It was noted, however, that this coverage will differ from company to company.

The overwhelming majority of claims are expected to come from policyholders who have homeowners, auto and business insurance coverages. Most analysts are, as of today, estimating insured losses from the southern California wildfires at anywhere from $900 million to $1.6 billion.

Moody's Investors Service said that it does not expect that insured losses from the wildfires will significantly impact p-c insurers it ratings.

Moody's Senior Analyst Pano Karambelas said in a statement that "the brunt of the losses will be felt by both admitted and excess and surplus lines insurers with significant residential lines market share in the affected areas. To a lesser degree, there will also be claims activity from automobile and business interruption coverage due to mandatory evacuations."

He said Moody's p-c ratings will remain stable because personal lines carriers are financially well-positioned following two years of hard-market property pricing and benign catastrophe experience. In Mr. Karambelas' analysis, he said the severity of the fire losses, while nearing a record, is small compared to exposure insurers have to moderate and severe hurricanes and earthquakes.

Moody's said for the vast majority of rated issuers, probable maximum loss exposure from wildfires "is quite manageable and would not be expected to impact more than one quarter's earnings."

The rating firm warned that insurers could face more severe events in the future if the state's explosive development in affluent wildland communities continues.

Last week, Fitch Ratings said carriers are well positioned to absorb California fire losses, since catastrophe claims have been well below average this year and Standard & Poor's said it is maintaining its current stable outlook on the property-casualty insurance sector in the face of the wildfires.

Special Reports /

Calif. Fire Claim Payouts Seen Boosting Economy

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