RMS Estimates CA Wildfires Could Cost Insurers Up to $1.6 Billion

The wildfires ravaging large swaths of Southern California are likely to cost insurers between $900 million and $1.6 billion, making them among the most expensive in the region’s history, according to analysis by Risk Management Solutions (RMS), the world’s leading provider of products and services for catastrophe risk management. If the wildfires continue to spread in this ongoing situation, losses are expected to reach or even exceed the higher end of this estimate. Of the 23 fires, the Witch Fire in San Diego has caused the most property damage so far and is likely to result in insured losses of $600 million to $1 billion.  
  
The fires have burned over 465,000 acres of land and destroyed more than 1,600 structures since Sunday. Over 27,000 buildings remain under threat, and nearly one million people have been forced from their homes, making it the largest ever evacuation in California and the biggest in the U.S. since Katrina. The National Guard has been drafted in to facilitate with the evacuation, considered to be one of the most organized following a U.S. national disaster, while firefighters work to contain the fires.  
  
“For many of the fires, the emergency services have either gained control or set up defenses around the main urban areas, and conditions are becoming more favorable. But several large fires are still largely uncontained and have the potential to cause severe property loss,” said Don Windeler, director of model management at RMS.  
  
The wildfires were made worse by an explosive combination of unusually strong Santa Ana winds and abundant dry fuel. Previous wet winters, followed by a very dry 2007 gave rise to a large quantity of surface fuel, providing a source for rapid fire spread.  
  
Estimated insured losses from these wildfires would make them among the costliest in Californian history. The Oakland Hills fires in 1991 remain the most expensive, with insurance claims totaling between $3 and $4 billion in today’s values. In October 2003, an outbreak of wildfires that struck similar areas in San Diego and throughout Southern California caused $2 billion to $2.5 billion in losses.  
  
Primary personal lines insurers and specialty writers for high-value properties are expected to incur most of the claims from these wildfires. “In recent years there has been significant development in the wildlands that border urban areas, as people seek to live in a more natural environment. As a result, more properties are at risk from brushfires which pose a high hazard in these areas,” said Mr. Windeler.   
  
RMS is continuing to monitor the wildfire situation and will update its loss estimate accordingly as more information becomes available.  
  
RMS experts have been consulted by the media for their perspective on the event. Information on media commentary and links to media coverage are available below.  
  
RMS' Neena Saith was featured in an October 25, 2007 Financial Times article, where she discussed the extent of property loss resulting from the fires, and the implications of further spread on the size of claims. Saith stated that the greatest loss thus far has resulted from the Witch fire in San Diego, which had destroyed approximately 650 properties in the area.