More bad news for insurance carriers operating in California – a report released this week from
Guy Carpenter & Company anticipates that insured losses from the two September wildfires in the state could approach and even exceed $1.75 billion.
That’s up significantly from a report earlier this month from
Aon forecasting losses of $1 billion.
The report, “US Wildfire: An Ever Present Hazard,” utilizes data from Guy Carpenter clients and subsidiaries, as well as from the National Interagency Fire Center, which found that 9.27 million acres were destroyed by the fires through October 8. That’s compared to a 10-year average of about 6.3 million.
Researchers said a high pressure front was responsible for creating the hot and dry conditions that caused the record-setting damages.
“Wildfire is a significant peril impacting insurers in the United States each year,” said Guy Carpenter US Operations CEO Tim Gardner. “Preliminary data indicates that 2015 insured losses from wildfires may approach or exceed $1.75 billion.”
The damages near those incurred in the 1991 Oakland firestorm that cost more than $2.6 billion in 2014 dollars. In fact, they are so high that many insurers are pulling coverage from policyholders due to an “unacceptable risk of wildfire.”
Already, several homeowners have found themselves served with non-renewal notices and no other choice but to seek out expensive coverage in the excess and surplus lines market.
“There are currently no laws in California that prohibit an insurer from non-renewing a homeowners insurance policy,” Insurance Commissioner Dave Jones told local news station KCRA-TV.
Jones attributes the widespread phenomenon to the ongoing drought in the state, emphasizing that insurers are just trying to protect themselves from costly risk.
Making those costs soar even higher is the dearth of firefighters on the West Coast. Although more than 32,000 firefighters are actively working to contain fires in California and the Pacific Northwest, the US Forest Service has had to shift more than $250 million to other accounts to pay for firefighting costs – which are now $700 million over appropriation.
Faced with that reality, many agents in the area are increasingly placing accounts with the non-admitted market. In fact, the Surplus Line Association of California estimates that 91% more homeowners policies were written by this market in 2014 than in 2011.
“In the past two years it’s really taken off, and most of that is really driven by the fires,” said Andy Fletcher of wholesale broker Scottish American.
Fletcher already writes about 2,500 policies a year – a number he expects to grow beyond 3,000 next year following this round of wildfires.
About 80% of those policies are for homes in high fire areas, where homeowners can expect to pay about twice as much as they would for a standard policy.
