Author: Tom JacobsKris Elaine Figuracion
The prospect of another severe fire season continues to impact the homeowners insurance market. Aon PLC in a recent white paper said the market continues to restrict capacity to cover wildfires as the events become larger and more frequent.
Insured losses from wildfires in the U.S. have exceeded $13 billion and economic losses have topped $20 billion in three of the last four years, according to Aon. Catastrophe losses related to wildfires at Farmers Insurance Group of Cos. touched $2.1 billion in 2018 alone.
Most wildfire losses that have hit the insurance market originated from California utility companies due to inverse condemnation, which states that private property owners are entitled to compensation if their property is damaged by the government or utilities. While all U.S. states have such doctrines in place, California has been the only one to apply it for utility-related fires. Aon’s report stated that there have been “significant” price spikes in excess casualty risks associated with wildfires, “especially when no exclusionary language is in place.”
Speaking during The Travelers Cos. Inc.’s second-quarter earnings call, Michael Klein, president of personal insurance and executive vice president, said the company is managing its wildfire exposure across all lines. Travelers continues to work its way through nonrenewal activity subject to the lifting of moratoriums as they expire, he said. The company last month was granted an additional 6.9% rate increase on its property product in the Golden State, Klein added.
Property damage in California year-to-date has been relatively light compared to recent years. According to Cal Fire, there have been 4,991 incidents that have destroyed or damaged 135 structures and caused no fatalities.
California in 2020 totaled 10,431 fires that torched more than 4 million acres. Paul Pastelok, long-range meteorologist for AccuWeather, said the potential is there for those numbers to be matched this year. Very low mountain snowpack melt-off, coupled with a moderate La Niña that lasted from the end of last summer through the winter worsened the drought in the western U.S. and produced extremely dry conditions.
While homeowners multiperil and fire dwelling premiums at the largest insurers well outpaced incurred losses in the Golden State in 2020, that was not the case in neighboring Oregon. Incurred loss ratios exceeded 100% for all of the top 10 writers of those businesses last year. Given the rate and capacity adjustments being made in California in response to the rising threat of wildfires, it is possible that insurers could follow suit in Oregon as well.