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California Wildfires Could Cost Insurers Over $1.5 Billion,
Says RMS
Newark, C.A. – October 25, 2007 – 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.
In a radio interview with Dow
Jones MarketWatch, RMS' Don Windeler discusses the impact of the
Southern California wildfires:
Click on the links below for additional RMS media
commentary on the Southern California wildfires:
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