The devastating Palisades and Eaton wildfires in California are projected to result in insured property losses between $28 billion and $35 billion, according to Verisk’s Extreme Event Solutions group. These fires have caused immense destruction across residential, commercial, and industrial properties, and the financial toll underscores the increasing challenges posed by wildfire risks in high-value areas.
Unprecedented Loss Estimates Across Multiple Sectors
Verisk estimates that losses from the Palisades fire will range between $20 billion and $25 billion, while the Eaton fire is expected to contribute $8 billion to $10 billion in insured losses. The majority of these losses stem from residential risks, including damage to homes, contents, and automobiles. Demand surge, debris removal, and time element coverage further contribute to the financial impact.
The Palisades area, known for its high property values, has seen significant losses to luxury contents such as fine art, jewelry, and other high-end goods. Verisk’s analysis utilized the 360Value® Quarterly Residential Replacement Cost Index, which incorporates seasonally adjusted construction cost data for Los Angeles and Santa Barbara counties, to estimate rebuilding costs.
Addressing the Scope and Exclusions of Loss Estimates
While the projected property losses are staggering, Verisk clarified that its estimates do not include certain types of damages or costs, such as:
- Losses from smoke damage.
- Losses to uninsured properties or infrastructure.
- Costs from hazardous waste cleanup or civil commotion.
- Loss adjustment expenses or extra-contractual obligations.
Additionally, the estimates exclude losses exacerbated by litigation, fraudulent assignment of benefits, and social inflation, highlighting the complexities of quantifying the full impact of these disasters.
Advancing Risk Management and Resilience
“The ongoing devastation from these deadly wildfires is truly heartbreaking,” said Rob Newbold, president of Extreme Event Solutions at Verisk. “We are advancing science and risk management to help communities build resilience against disasters like these catastrophic wildfires. The amount of data and insights to support mitigation efforts continues to grow, which can help inform how communities rebuild in the wake of this disaster.”
Verisk’s commitment to innovation extends beyond estimating insured losses. The company is working with the California Department of Insurance to review its U.S. Wildfire Model, a first-of-its-kind initiative aimed at enhancing catastrophe modeling and increasing insurance availability in high-risk areas.
Collaboration with the California FAIR Plan
The California FAIR Plan, which provides coverage for high-risk properties, faces significant exposure due to these wildfires. With 23% of its portfolio concentrated in Los Angeles County, the FAIR Plan plays a critical role in addressing insurance gaps. Verisk’s estimates account for losses covered under the FAIR Plan, emphasizing the program’s importance in supporting affected communities.
Preparing for a Resilient Future
The financial and emotional toll of the Palisades and Eaton fires highlights the urgent need for proactive risk management strategies. Catastrophe models, such as Verisk’s U.S. Wildfire Model, offer critical insights into natural disaster risks and help communities, insurers, and regulators prepare for future challenges. As climate-related disasters grow in frequency and severity, the insurance industry must continue to innovate and collaborate to build resilience and provide effective coverage.
About Verisk
Verisk (Nasdaq: VRSK) is a leading strategic data analytics and technology partner to the global insurance industry. Through advanced analytics, software solutions, and scientific research, Verisk empowers clients to make informed decisions about risks, including those posed by climate change and extreme events. For more information, visit Verisk.com.