AM Best Report: Wildfires Could Add to Insurers’ Cat Losses
After nearly $2 billion in claims from the Southern California wildfires in 2007, the insurance industry faces the prospect of another rough wildfire season and escalating losses in the years to come. Across the nation, the past two wildfire seasons have been the most severe on record and larger fires are more frequent.
-- Annual wildfire catastrophe losses have averaged more than $1.0 billion this decade, after adjusting for inflation, based on figures from ISO's Property Claim Services unit.
-- Previous wildfire catastrophes have yet to result in specific rating actions. However, A.M. Best does foresee instances where more prevalent wildfire losses in tandem with other catastrophe losses could pressure insurers' balance sheets.
-- Major carriers have been able to reduce claims costs because of a change in policy language introduced in the mid-1990s from guaranteed replacement cost to extended replacement cost coverage. As a result, more homeowners have found that total loss claims payments have not kept pace with rebuilding costs, leading to complaints and lawsuits.
-- Wildfire events do not always meet the $25 million loss threshold to be declared a catastrophe. Yet some insurers' costs are rising from expenses to track and settle claims, litigation costs and from adjusted living expenses related to mandatory evacuation orders.
-- Because of warmer temperatures in the western United States, the fire season may be up to two months longer, some wildfire experts say.
-- More insurers are declining to underwrite homes located in canyon areas or on hillsides exposed to dry vegetation and trees.
The complete report, “Wildfire Losses Set to Increase Industry's Catastrophe Woes,” is available on on-line at www.ambest.com.
Source: Source: AM Best | Published on July 22, 2008
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