Calif. Wildfires Cost $2B, Maybe More
With the Southern California wildfires virtually contained, the hard work of figuring out how much it will all cost begins, and estimates are putting insured losses close to being the most expensive wildfire in U.S. history.
The wildfires covered five countiesSan Bernardino, Riverside, San Diego, Los Angeles and Venturaand ran from Mexico north to northeast of Los Angeles.
According to the state of California, as of Wednesday, Nov. 5, the fire consumed 745,190 acres, claimed 22 lives and 183 injuries. Approximately 4,825 homes, commercial and other structures were destroyed. All but three (of what amounted to 10 fires at one point) were contained. Two of the remaining fires, Paradise and Piru, were 90 percent contained, and the Grand Prix fire was 98 percent contained, said a state Office of Emergency Services spokesperson.
The Insurance Information Network of Californias spokesperson Pete Moraga said the association estimates insured losses at close to $2 billion. As of Wednesday, the association reported 6,739 insurance claims, primarily homeowners, some auto and commercial.
Despite the losses, Robert Hartwig, vice president and chief economist for the Insurance Information Institute Inc., based in New York City, said that this single event in itself would not affect property prices. He said it could cause carriers to re-evaluate property risks in Southern California. What will have greater impact on rates, he said, is climatic change, which is making the region dryer and more prone to fires, and demographic shifts. More people are moving into these fire-prone regions, he observed, and as long as local officials allow homes to be built there, the result would be more claims in the future.
While the 2003 Southern California wildfires are on track to become one of the most expensive fires in U.S. history, it may not surpass the 1991 Oakland Hills fire, which cost $1.7 billion, he said. In terms of 2003 dollars, Mr. Hartwig noted, the 2003 fires would have to exceed $2.25 billion to surpass Oakland Hills.
"It looks like it is going to be close," said Mr. Hartwig.
Richard Clinton, president of EQECAT, the Oakland, Calif.based risk consulting firm, echoed Mr. Hartwigs comments. He said this fire is on par with losses from the Oakland Hills fire and could exceed it. As far as the total cost in losses from the fire, he said that could not be determined at this time.
One result of the fire has been an increased demand for risk analysis on wildfires from carriers, Mr. Clinton said, something the firm specializes in. Most of the requests have centered in Western states with a few in Florida"anywhere where there is a lot of vegetation and high housing density," he said.
Lori Johnson, vice president technical marketing catastrophe response team, and Claire Souch, manager catastrophe response, with catastrophe risk modeling company RMS, based in Newark, Calif., said their research came up with similar figures as others. However, Ms. Johnson said that there is a likelihood the final tally could exceed the $2 billion mark. She based this on the experience of the Oakland Hills fire where damage surveys increased estimates over time as more information became available. She said it would be several months before there is a final tally.
Locally, independent agents were working to answer policyholders questions and get the word out about what homeowners should be doing in this time of crisis.
Derek S. Ross, vice president at C.M. Meiers Company Inc., in Encino, and president of the Insurance Brokers & Agents of the San Fernando Valley, said claims are just beginning to come in as residents get to their properties for the first time. He said many of the claims in the region would be coming from vacation homeowners in the Lake Arrowhead area. But many claims would end up in the hands of direct writers.
The top three writersState Farm, Farmers and Allstatewrite slightly more than 52 percent of the homeowners business in California, according to a report from Fitch Ratings in Chicago.
Mr. Ross said independent agents have been working in shifts throughout the region, manning information booths at evacuation centers to answer questions from policyholders about insurance coverage.
Sandy Roberts, vice president at Keffler Alai Insurance Services, an independent agency in Upland, Calif., said there were a lot of questions from policyholders concerning their coveragewhat they are and are not covered for. She said many who were ordered to leave their homes were unaware of the civil authority evacuation coverage that provides funds to policyholders for housing.
Getting the word out about insurance has also meant, for her, being interviewed on radio to answer questions about coverage, contracts and issues they should be aware of as they go through the process of putting their lives back together.
Both Mr. Ross and Ms. Roberts noted that the fires came at a point when insurers were beginning to lift their moratoriums on homeowners insurance. State Farm, for one, had just begun writing new policies in October, replacing lost business.
Ms. Roberts said she hoped that the wildfires would not have an adverse affect on rates in California.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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