Insurers Say Calif. Wildfire Claims May Reach $500 Million

October 23, 2007

The insurance industry is estimating that the damage from the wildfires in southern California could reach at least $500 million in insured losses.

The Insurance Information Network of California issued the preliminary estimates of insured losses resulting from the 11 fires burning in southern California.

“Using historical data as guideposts, we know that the current fires will exceed those of the Laguna and the Topanga-Malibu areas of 1993,” said Candysse Miller, executive director for IINC. “In Laguna, 441 structures were lost, resulting in $350 million in insured losses. In Topanga-Malibu, 323 structures were destroyed, resulting in $375 million in insured losses.”

Earlier reports indicated more than 700 homes and businesses have been burned.

Meanwhile, the Insurance Information Institute said more than half of California’s 12.5 million homes face wildfire dangers that pose a financial loss potential well in excess of $100 billion.

The 1991 Oakland Hills fire remains the most destructive in California’s history, with 2,900 homes lost and $1.7 billion in insurance claims paid, she indicated.

According to Don Windeler, director of model management for Risk Management Solutions, 2003’s Cedar Fire and Old Fire incurred $2.76 billion in insured losses. Adjusted for inflation, the losses would in the $3 billion to $4 billion range, he said.

In the ongoing blazes, Miller said the association is hearing reports of up to 1,100 homes claimed so far. He said his firm’s surveys of the insurance industry have confirmed a total of 1,760 claims filed from southern California firestorms as of 2 p.m. Tuesday, October 23.

The Farmers Insurance Group of Companies reported it had received more than 1,000 claims from a 100,000-acre area ranging from Los Angeles to San Diego, as of 3:30 p.m. on Tuesday, October 23. The company, like many other insurers, has sent in claims teams to assist customers in filing claims. Farmers indicated it had 11 mobile claims centers located throughout southern California, seven in the San Diego area.

As of press time, Farmers, Mercury Insurance Group, State Farm, Travelers, Safeco and Zurich reported to Insurance Journal that they had sent in claims teams to the affected areas.

Meanwhile, RMS said it was too early for it to make loss predictions, noting his company was still monitoring fires as they spread. Windeler predicted his company would begin to make estimates later in the week.

“We’re still in a pretty volatile stage of the fires,” he said. “We’re so dependent at this stage on whether some key fires happen to jump a fire break, get into more dense subdivisions … if (fires) make it through into denser populations, there can be an extremely high jump in total losses. Weather is not expected to turn significantly for the better until tomorrow — wind is expected to turn tomorrow (Wednesday) and humidity is expected to go up on Thursday — so we really have 24 hour of critical time for what the final toll will be and how well firefighters keep significant losses from occurring.”

Windeler indicated that a lot of the conditions with the current fires parallel the fires of 2003. Wet winters a couple of years ago created a lot of brush growth, but this year was drier, creating the potential for a lot of fuel, he said.

“This is a pretty dangerous fire overall. It’s hardly a surprise, if you look at the combination of conditions — significant Santa Ana winds that are especially fierce in terms of overall wind speed, in combination with a lot of fuel that’s available,” Windeler said.

Nevertheless, Miller predicted the insurance industry is capable of handling any resulting claims. “It is important to remember that the insurance industry has confronted catastrophic fires before, and while the current firestorms are clearly of historic magnitude, the industry not only has the ability to pay these claims, but also is already writing checks to fire victims,” she said in a statement.

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