Insurers and the California Wildfires

satellite-of-fire.jpgI’ve been in California for most of the past 40 years, and although hyperbole is a statewide character flaw, I believe I’m on solid ground in saying this week’s wind-driven wildfires are, collectively, the worst ever.

Keep in mind that SoCal’s topography and natural ground cover is made to burn. When the region was nothing but ranches and a few scattered Indian settlements, there were wildfires. It’s part of the ecosystem. Many of the native plants require smoke or fire to germinate their seeds. Attempts to suppress wildfires to protect suburban homes just increase the fuel load for the inevitable next fire to come.

But California suburbanites whose homes cling to the sides of canyons are fatalistic, just like the shoreside people in Florida and South Carolina. Most of the time, these home sites are just spectacular, with vertiginous rural views and air sweetened by fennel and sage. Big fires in specific areas are separated by years, even decades, because once it happens, it takes a long time for the ground cover to regrow.

The fires usually come after a warning — the arrival of the hot, dry and powerful Santa Ana winds. Firefighters are prepared to do brave battle, as we’ve seen over the past few days.  (Not everyone agrees California was so prepared.)  And, of course, assuming the worst — at this writing, more than 1,000 homeowners have experienced the worst — the homeowners all have insurance.

So what is the insurance industry facing?

Here’s what Goldman Sachs analyst Thomas Cholnoky says:

Lloyd’s of London and non- traditional insurers may have higher costs from the California wildfires than companies that protect most homes in the state, including Allstate Corp., according to Goldman Sachs Group Inc.

“Most of the traditional writers have explicitly avoided” areas of the state prone to wildfires said analyst Thomas Cholnoky in a note to investors today. “The one exception may be fires around the San Diego area, which appear to have jumped from brush areas to non-brush areas.”

…due to winds blowing up to 90 miles per hour.

The fires have burned more than 283,000 acres (115,000 hectares) and destroyed about 700 homes and 100 businesses, making them among the worst in the state’s history, said Steve Turner, a spokesman for the State Joint Information Center. The average home in the areas struck by the fires costs $500,000, Cholnoky said, meaning that for every 100 homes lost, the insurance industry would pay about $50 million.

Actually, as of right now, 9:22 p.m. Tuesday, the LA Times reports 1,155 homes gone, so the bill will be at least $575 million, with containment “days away.” Other news reports give even higher numbers.

The LA Times reports that insurance adjusters and company executives “began hitting Southern California in full force today,” minding their public images as much as their potential liabilities.

By early afternoon, the state’s biggest home insurer, State Farm General, and No. 2 Farmers Insurance Group said they’d received more than 2,100 claims from calls to toll-free numbers, contacts with agents and visits to field offices.

To better serve its customers, Farmers rolled a “mobile claims command center” to an evacuation center near Qualcomm Stadium in San Diego and served 1,000 breakfasts to evacuees this morning. “We want people to see that their insurance company is out here,” said Paul N. Hopkins, Farmers’ chief executive officer.

State Farm spokesman Bill Sirola said his company also was moving in mobile units and “is well into the process of mobilization.”

A third insurer, American International Group Inc, was taking an even more proactive stance. It’s Private Client Group subsidiary dispatched six special trucks to spray retardant on the vegetation and wood portions of policyholders’ multimillion-dollar homes threatened by fast-moving fires.

That’s now. In the near future, Times’ reporter Marc Lifsher writes, insurance premiums for California homeowners will almost certainly go up, and some insurers may stop writing new policies altogether — as Allstate already has done.

I said earlier that this week’s fires were “the worst ever.” Not from insurers’ perspectives. According to Business Week,

The most expensive fire in recent history was in October, 1991, in Oakland and other parts of Alameda County. That cost $1.7 billion at the time, or $2.5 billion in 2006 dollars, according to the Insurance Information Institute. The blaze started from a grass fire in Berkeley Hills and spread across more than 1,000 acres, destroying more than 3,000 homes.

The next two most expensive fires occurred from Oct. 25 to Nov. 4, 2003. In San Diego County a blaze caused $1.1 billion in damages. Over roughly the same period, San Bernardino County suffered $975 million in damages. Eight of the most expensive fires in the U.S. have taken place in California, according to the insurance institute, with the other two in New Mexico and Arizona.

Business Week adds that estimates of the current fire could skyrocket based on the course of the fire in Malibu, where homes owned by the likes of “Bob Dylan, Mel Gibson, Pamela Anderson, and Britney Spears” cost a lot more than $500,000. However, latest reports indicate the Malibu fire is approaching containment, so that was probably the last time those four names will appear in the same sentence.

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2 Comments on “Insurers and the California Wildfires”

  1. Tim Says:

    California is a great place to live! California’s market is expansive and exploding. What a privilege it is to be a part of the California area community. For more information on California Home Businesses visit:

  2. […] State Farm General, Farmers and AIG quotes (all less than 2,500 thus far?): Click here […]

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