Calif. Wildfire Insurance Loss Estimate Raised to $1.5 Billion

By Patricia-Anne Tom | October 25, 2007

Insured loss figures from the Southern California wildfires seem to be creeping up from earlier reports, even while insurance industry analysts say it’s too early to tell the extent of the losses.

According to National Interagency Coordination Center, 1,514 structures throughout the region have been lost to fires, at least 650 of which are due to the Witch Fire burning 1 mile north of San Ramon in San Diego County. That fire had burned 196,240 acres and was 20 percent contained as of press time.

With 12 wildfires still burning late Wednesday evening, and tens of thousands of households evacuated, EQECAT estimated that insured losses to date have exceeded $1 billion. The risk modeling company also added that it expected “losses to continue to grow until the winds die down and firefighters are able to contain the fires.”

California Insurance Commissioner Steve Poizner echoed the loss estimate in a press briefing earlier in the day. At that time, he declared an insurance emergency to help accelerate claims processing.

Risk Management Solutions predicted losses could be even higher, ranging between $900 million and $1.6 billion. “If the wildfires continue to spread in this ongoing situation, losses are expected to reach or even exceed the higher end of this estimate,” the company said.

While the risk forecasting firm AIR Worldwide said it did not expect to have loss estimates until next week or after the fires are reported to be 90 percent contained, “the entire siege so far has resulted in 1,200 to 1,300 homes lost,” said Dr. Tomas Girnius, a company research scientist, on Wednesday afternoon. In comparison, the 2003 Cedar Fire resulted in 2,200 homes lost and $1.2 billion in estimated losses, he said.

Girnius said it is tempting to compare this year’s fires with the mega fires of 2003 because of their similarities in areas affected, as well as rapid spread due to Santa Ana winds. “The location of some of the fires, such as the Witch Fire, is eerily reminiscent of the Cedar and Old Fires of 2003. It’s really tempting to push the comparison of now to 2003, but we have to be careful in recognizing that in 2003, Santa Anas didn’t kick in until the third or fourth day, so the (fire) ramp-up was slower, which is in contrast to the current siege where the Santa Anas were existent from the start,” he said. Additionally, he said the number of fires reported in this week’s disaster reached up to 20, whereas there were only 11 to 12 fires in 2003.

If there is any good news to the forecast, Girnius said that while Santa Anas have spread current fires rapidly, the winds were dying down by Wednesday afternoon. “High winds can hurt firefighting efforts by tossing embers onto rooftops,” he explained. In fact, some embers were reported to have spread up to 2 miles, which he said “is remarkably long.”

“This is a little squishy analysis, but my understanding of the latest reports from meteorologists is that the Santa Anas have already died down, when initially the impression was that they were going to persist into Thursday,” Girnius added.

Indeed, the National Weather Service confirmed late Wednesday night that Santa Ana winds “have finally decreased … and only local gusts from the east of around 25 mph were occurring at late afternoon in the mountains and below passes.” The agency expected winds to continue to decrease overnight, and humidity to increase. “While the fire danger remain elevated Thursday … it will not be nearly as high as it has been in the past few days. Humidities will recover by about 5 to 10 percentage points Friday,” NWS said in a statement.

Based on that weather forecast, property owners and the industry all hoped Southern California had turned the corner. Firefighters in particular hoped less wind would allow them to get further along in their fighting efforts.

Girnius noted that because of the number of fires burning, firefighting resources have been spread thin. “This was a factor in the 2003 fires, and is reported to be a factor this year as well,” he said. In fact, he said field commanders tackling the Witch Fire mentioned that because that fire was one of the later fires to ignite when auxiliary resources were already assigned to other fires, that caused heavy losses in the area. RMS predicted insured losses of $600 million to $1 billion from the Witch Fire alone.

“In these kind of sieges, local firefighting efforts are never sufficient,” Girnius added. “They call on other counties, other states, on support from the federal government, and really need to have all hands on deck.”

If estimated insured losses from the fires prove to be correct, these wildfires would prove to be the costliest in California history. The Oakland Hills fires of 1991 is the most expensive to date, with insurance claims totaling between $3 billion and $4 billion in today’s values, RMS said. The 2003 fires in Southern California caused $2 billion to $2.5 billion in losses.

RMS’ Don Windler, director of model management, said, primary personal lines insurers and specialty writers for high-value properties are expected to incur most of the claims from the wildfires. “In recent years, there has been significant development in the wildlands that border urban areas, as people seek to live in a more natural environment. As a result, more properties are at risk from brushfires, which pose a high hazard in these areas.” (For information on construction in the wildland urban interface and its affect on wildfires, visit Insurance Journal West Region’s October 22 issue.)

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