III: Calif. Wildfires Worst Ever, Losses Expected to Exceed $2 Billion

Surveys of the insurance industry have confirmed a total of 7,260 claims filed from the Southern California firestorms as of 4 p.m., Wednesday, Nov. 5, according to the Insurance Information Institute.

Reports of up to 3,500 structures have been damaged or destroyed by the Southern California firestorms. Based on these reports, the wildfires are expected to be the most costly brushfires in California history. The Oakland Hills fire of October 1991 had been the most destructive brushfire in California history and the tenth costliest disaster in U.S. history with 2,900 homes lost and $1.7 billion ($2.245 in 2002 dollars) in insurance claims paid.

Using historical data as guideposts, it is anticipated that the current fires will exceed Oakland Hills as well as those of Laguna and the Topanga-Malibu areas, which had their 10-year anniversary just this week. In Laguna, 441 structures were lost, resulting in $350 million in insured losses; in Topanga-Malibu, 323 structures resulting in $375 million in insurance losses.

“We’re not yet done with these very unpredictable fires, which are likely to reach upwards of $2 billion in insured losses,” said Candysse Miller, executive director of the Insurance Information Network of California (IINC).

“It is important to remember that the insurance industry has confronted fires of this magnitude before, and while the current firestorms are clearly of historic magnitude, the industry has the ability to pay these claims.”

Robert Hartwig, senior vice president and economist with the Insurance Information Institute (III) noted that while formidable, the California wildfires will fall generally within the range of catastrophic risk that insurers anticipate and built into insurance premiums for homeowners and businesses on the West Coast.

“I would not expect the fires to have a significant effect on insurance rates,” he said.

“However,” Hartwig cautioned, “while the industry has the capacity to pay these claims, the California wildfires substantiate what the industry has been seeing for several years. Homeowners insurance rates in many parts of the country have been rising in large part because of the significant costs associated with these kinds of disasters. In fact, virtually every part of the country is now at risk for billion dollar disasters.”

Catastrophe losses for the first nine months of 2003 now stand at $9.4 billion, more than double the $4.1 billion for the same period last year. The I.I.I. estimates that homeowners insurance rates will rise approximately eight percent in 2004.

BACKGROUND

More than half of California’s 12.5 million homes face wildfire dangers that pose a financial loss potential well in excess of $106 billion. While other Western states have survived a relatively mild brushfire season, California typically faces its greatest danger from October through early November, when winds peak.

According to new research by the California Department of Forestry, more than 7.2 million California homes are categorized in the three highest fire risk levels — more than 6 million of which are located in urban areas. These include Los Angeles County, with more than 734,000 homes at risk, or 22.5 percent of all the homes in the county; Alameda County, with more than 244,000, or 45.2 percent; and San Diego County, with more than 619,000, or 59.5 percent.

The estimated 585,000 homes categorized in the highest risk level statewide pose a potential financial loss of at least $106 billion, according to CDF projections.

The fire danger is compounded by years of drought-like conditions and the ravages of a bark beetle infestation that has turned California forests into tinderboxes just waiting for a spark.

Few communities are immune from the deadly combination of fierce October winds and the effects of summer’s traditional lack of rain.

Topics California Catastrophe Natural Disasters Profit Loss Wildfire