Report: California Wildfires Could Cost Insurers More than $1.5 Billion

The wildfires ravaging large swathes 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. If the wildfires continue to spread in this ongoing situation, losses are expected to reach or 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 it is likely to result in insured losses of $600 million to $1 billion.

The fires have burned more than 465,000 acres of land and destroyed more than 1,600 structures since Sunday, Oct. 21. More than 27,000 buildings remain under threat, and nearly one million people have been forced from their homes, making it the largest evacuation in California history and the biggest in the United States since Hurricane Katrina. The National Guard, which is considered to be one of the most organized units following a U.S. natural disaster, has been drafted in to facilitate with the evacuation, 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,” said Don Windeler, director of model management at RMS. “But several large fires are still largely uncontained and have the potential to cause severe property loss."

Estimated insured losses from these wildfires would make them among the costliest in California history. The Oakland Hills fires in 1991 remain the most expensive, with insurance claims totaling between $3 billion 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,” Windeler said. “As a result, more properties are at risk from brushfires which pose a high hazard in these areas.”

Unusually strong Santa Ana winds and abundant dry fuel made for an explosive combination which made the wildfires worse. 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.

Source: Risk Management Solutions news release

Posted: Thursday, October 25, 2007 12:00:00 AM. Modified: Thursday, October 25, 2007 11:14:20 AM.

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