Californiat Wildfires Still Going

The wildfires in California are still going. The Santa Ana wind conditions, the primary accelerator for the recent fire outbreaks, have died down and fire crews are able to begin actively extinguishing and suppressing the fire.

In summary, the fires have burnt a cumulative total of more than 480,000 acres (almost 200,000 hectares to those constrained by the metric system) and more than 1,500 homes appear to have been lost. Personal lines insurance will comprise the bulk of the insured losses, which we currently estimate will sum to between $1 Billion and $1.5 Billion. The final loss tally could be higher if crews are unsuccessful in completing the containment of the fires due to additional winds or other extenuating conditions.

While some of these fires are presumed to have been caused by arson, California has historically had many large scale fires. Some of the more recent fires include:

The 1991 Oakland Hills Fire burnt 2,450 houses and more than 400 apartment units, producing almost $1.7 Billion in insured losses. The outcome of this fire highlighted some of the moral hazards in the then-existing "Replacement Value" insurance conditions.

A sequence of Southern California Fires of 1993 covered more than 300 square miles (~80,000 hectares), more than 1,000 structures were lost with insured losses approaching $800 Million.

The Southern California Fires of 2003 spanned more than 660,000 acres (270,000 hectares), destroyed more than 3500 homes and triggered insured losses approaching $2 billion.
San Diego and Santa Barbara counties have been the locations of some of the larger fires in California areas. These large counties, consisting of vast swaths of unsettled land, have historically contained significant amounts of vegetation that will burn in the right conditions. Some of the larger individual fires in California history have included:

Table 1. Selected Major Wildland Fires in California

The risk in California is increasing with increasing population, wealth and society's preference to live along the wildland-urban interface. This risk is mitigated by building codes which are increasingly promoting the usage of fire-resistant construction materials and local codes that are improving brush cutbacks, etc. The EQECAT California Brushfire natural catastrophe model helps clients assess the volatility in risk in their portfolios from this very real financial risk.

Google Maps

Below is a link to an amazing map of the San Diego fires provided by Google.

Google Maps

Insurance woes loom for wildfire victims - Oct. 23, 2007

Insurance woes loom for wildfire victims - Oct. 23, 2007:
The above link is from CNN.com.

While the fires still are burning in Southern California, the next topic on the horizon is what effect this will have on the insurance industry. Articles already are beginning to appear that talk about the problems insured's may face in the wake of the fires and whether this will affect premiums and future coverage availability.

Of particular note for Alacrity is the possibility that some of the homeowner's may be underinsured and thus, there may be situations where not all of the damages are covered. As the CNN article states:

"One of the biggest controversies erupted in 2003, when fires ravaged San Diego and San Bernardino counties. Consumers found themselves underinsured because their policy limits were not raised to reflect their home values, said Heller. That meant homeowners had to pay the difference. 'I think there is a question as to whether insurance companies learned from 2003 and have made sure that policyholders have enough coverage,' said Heller."

California Burning: Insurers Readying for Claims From Wildfires

Interactive Map - http://www.cnn.com/2007/US/10/23/fire.map/index.html

OLDWICK, N.J. October 22 (BestWire) — California insurers are bracing themselves for claims generated by 11 major wildfires reported across seven counties, which have prompted Gov. Arnold Schwarzenegger to declare a state of emergency.

Lonny Haskins, spokesman for State Farm Group, said it seems "like all of southern California is on fire." "Right now we are trying to help local authorities the best we can," Haskins said. "Our main concern is making sure people are safe. It's no time to hang around there."

According to catastrophe modeling firm Risk Management Solutions, up to 80,000 acres had been burned as of the afternoon of Oct. 22.

"It is truly a volatile situation at the moment," said Neena Saith, catastrophe response analyst for RMS. "It really is too early to begin speculating. We'll just watch how these fires progress and if they do, the insured loss is sure to increase."

Conditions do not favor a quick end to the fires, Saith said. On Oct. 22, high-speed Santa Ana winds and dry conditions were exacerbating the situation, and weather is expected to remain consistent at least until Oct. 25. Saith said the fires, affecting Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura counties, continued to burn uncontrollably.

Thus far one of the most damaged areas appears to be Malibu, where a smaller fire has burned five homes and damaged others, Saith said. About 1,500 have been evacuated and more evacuations are expected, she said. More than 20,000 residents of Ramona, in San Diego County, have been evacuated. Qualcomm Stadium is being used to house evacuees. "It's the smaller fires that are doing the most damage so far because they are in the more populated, affluent areas," Saith said. Other wildfires are burning in more rural settings, she added.

Haskins said State Farm, the largest writer of homeowners multiperil and private-passenger automobile insurance in California, is deploying its catastrophe teams and sending personnel into the area. "The problem is, it's so difficult to establish one location for our teams; everything is so spread out," said Haskins, from the insurer's northern California office. "We do our best to help from up here. We have people going in a million different directions to help our customers."The company will provide information to policyholders for filing preliminary claims but Haskins said he doesn't expect to get any this early.

Allstate Insurance Group spokesman Peter DeMarco said the insurer is "doing everything we can to make sure we have the resources to help our customers." Catastrophe teams have been sent to San Diego and Los Angeles counties, DeMarco said. "Clearly, there is the possibility of some potentially disastrous scenarios because of these fires," DeMarco said. "We want to have the personnel in place to be able to help as best we can while we continue to monitor the developments."

Seven of the 10 most expensive wildfires in U.S. history have occurred in California, according to the Insurance Information Institute. Fires in San Diego and San Bernardino from Oct. 25 - Nov. 4, 2005 caused about $2.2 billion in property damage, the institute said. Those numbers have prompted property/casualty insurers to reassess the amount of risk they are willing to absorb. Some insurers require policyholders to take proactive steps to protect their houses from wildfire damage in order to maintain and renew homeowners insurance (BestWire, June 12, 2007).

State Farm Group currently has a Best's Financial Strength Rating of A++ (Superior). Allstate Insurance Group currently has a Best's Financial Rating of A+ (Superior).
In 2006, the top five writers of homeowners multiperil in California, according to A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 21.7% market share; Farmers Insurance Group, with 16.6%; Allstate Insurance Group, with 13.4%; California State Auto Group, with 6.3%; and USAA Group, with 4.5%.In 2006, the top five writers of private-passenger auto in California, according to A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 12.7% share; Mercury General Group, with 9.7%; Farmers Insurance Group, with 9.7%; Auto Club Enterprises Insurance Group, with 9.4%; and Allstate Insurance Group, with 9.3%.