Insurers are braced for another multi-billion-dollar loss from the fires in southern California, capping what is already shaping up to be one of the costliest ever years for the industry.
Adam Kamins, senior economist at Moody’s Analytics, estimates that losses from the Thomas Fire alone — the most serious of several in the region — would come in at about $1.5bn. That could rise sharply depending on how much it spreads. The ultimate losses will depend in large part on winds in the coming days.
Insurers already face claims of more than $100bn from a string of natural disasters this year, including hurricanes in the Caribbean and southern US, earthquakes in Mexico and wildfires in northern California in October.
Threats from the latest fires grew over the weekend. On Saturday, fire authorities ordered evacuations from some parts of Santa Barbara, a city just north of Los Angeles, along with nearby Montecito, home to celebrities including Oprah Winfrey and Ellen DeGeneres. Properties already damaged include multimillion dollar homes in Bel-Air, just north of Los Angeles.
Yet residents in less wealthy fire-exposed areas could also pay a price, as insurers seek to recover the costs through higher premiums.
The cost of the disasters is likely to push insurance prices up at the January 1 reinsurance renewal season. Some executives are predicting widespread increases as higher reinsurance prices filter down to the primary insurance that individuals and businesses buy.
Some industry executives are predicting widespread increases for several types of cover as higher reinsurance prices filter down to the primary insurance that individuals and businesses buy.
Tomas Girnius, manager and principal scientist at the modelling agency AIR Worldwide, said: “The current siege of wildfires in Southern California meets all the criteria for extreme loss-causing fires in that area: dry vegetation; fire ignitions in the wilderness close to residential areas; fierce . . . and recurring Santa Ana winds.”
Authorities in California have warned that about 18,000 properties are at risk of being damaged or destroyed in the Thomas Fire. So far, only 1,230 structures have been hit. The North Bay firestorms elsewhere in California in October damaged about 15,000 structures, costing insurers at least $9.4bn.
"The homes that are being destroyed are generally in fairly wealthy areas," Mr Kamins said. He added that unlike damage done by some of the other recent catastrophes — flooding caused by hurricanes, for instance — most of the loss was likely to be covered by insurance.
Dave Jones, California's insurance commissioner, has called on insurers to accelerate processing claims from the latest disaster. He also wants them to be flexible in demands for documentation as policyholders' paperwork may have been destroyed.
"While there’s fewer properties that have been damaged compared with October [the Northern California wildfires], the expectation is that they’re probably more expensive," Mike Schnur, partner at the broker TigerRisk. "This is just one more loss for insurers after a horrific year."
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