Moody’s Says Property/Casualty Insurers Face Significant Losses from Western Wildfires

September 17, 2020

Dozens of wildfires raging in California, Oregon, Washington and other Western states have resulted in loss of life, damaged or destroyed about 9,657 homes and commercial structures and burned more than 5 million acres, according to the National Interagency Coordination Center, California Department of Forestry and Fire Protection (CAL FIRE) and other authorities.

The wildfires continue to burn, with total insured losses in the billions of dollars for California homeowners insurers and commercial property insurers, and significant additional losses for insurers in Oregon, Washington and other western states, according to Moody’s.

California insured losses would be about $4.8 billion so far assuming CAL FIRE’s estimate of about 5,792 structures destroyed or damaged, and an average historic value of about $826,000 per structure, according to Moody’s.

Moody’s said there is “considerable variability” around the estimate because of the wide range of values for homes and commercial structures in the affected areas.

Also, roughly 3,865 structures have been destroyed in Oregon, Washington and other Western states.

“Given typically lower home values and construction costs in those states, we expect the per-structure losses in those states to be lower than the California average,” Moody’s stated. “Overall, we currently estimate insured losses in the $5 billion to $8 billion range. Given the strong recent recovery in the housing construction market following the coronavirus shutdown in second-quarter 2020, the increase in demand for construction labor and materials following the wildfires and other recent catastrophes has the potential to lead to higher insured losses.”

California and Oregon homeowners insurers are also likely to incur higher costs from additional living expense claims due to the tens of thousands of residents who have been subject to evacuation orders.

“We estimate that 2020 is already the third-highest year for California insured wildfire losses after 2018 and 2017,” Moody’s stated.

In 2017, property/casualty insurance losses from major October and December California wildfires that year totaled about $12 billion, which was surpassed by $13 billion of losses in 2018.

Insurers are responding to the severe wildfire seasons by raising rates, re-underwriting risk and purchasing additional reinsurance if available.

In particular, California homeowners insurers have not renewed policies, particularly in wildland-urban interface regions, while enhancing underwriting standards, conducting inspections, requiring homeowners to take steps to reduce wildfire risk and reducing geographic clustering.

“We expect that Oregon and Washington homeowners insurers will start taking similar actions following 2020 wildfire losses. As with California insurers in recent years, Oregon and Washington homeowners insurers could file for rate increases following the 2020 losses,” Moody’s stated.

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