Embroker Team October 20, 2022 4 min read

California Wildfires Lead to Record Insurance Payouts

In California, it’s not a question of will another wildfire breakout, it’s a question of when.

Furthermore, the narrative for business and homeowners has also changed greatly due to the distinct probability of wildfires occurring closer to well-populated areas almost on a yearly basis now.

A little over a year after wildfires caused record-breaking devastation across the state of California, local business and homeowners are staring disaster in the face once again with a new wave of deadly wildfires spreading across Northern and Southern California.

The fires of October 2017 destroyed more than 8,900 structures and killed at least 44 people, burning through a total of 245,000 acres and forcing more than 20,000 to evacuate their homes and places of business.

The current wildfires in Northern and Southern California have already burned 113,000 acres, destroyed 6,400 residences, 260 commercial structures and are threatening at least another 15,000, according to the most recent figures reported by CalFire. The death toll has already reached 50 as some 9,000 firefighters struggle to contain the blazes.

The Exposure

More than 6,700 structures have already been lost and with the weather throughout California still very dry, efforts to contain the blazes remain slow-moving.

With the Camp Fire in Northern California and the Woolsey Fire just outside of Los Angeles both continuing to burn, it is being estimated that total costs to the state, insurance companies, and homeowners, in the end, will eclipse $19 billion.

These losses are even more difficult to overcome given the similarly deadly and costly wildfires California experienced only a year ago.

According to California Insurance Commissioner Dave Jones, the statewide total of insured losses for the 2017 wildfires was $9.4 billion in commercial and residential claims. The losses in 2017 were already driving a firming of the property market, specifically fire rates, and underwriting appetites. Insurers had begun reviewing and moving to tighten underwriting guidelines to mitigate potential impact to their loss ratios.

As a result, property rates are expected to rise for home and business owners located in areas that are deemed at risk of wildfires and some insurers are non-renewing policies for those located in these high-risk areas.

It’s hard to fault them for doing so when taking into consideration the fact that insurers in California lost four times more money last year than they did in 2016, a total of nearly $16 billion – a loss that was almost entirely the result of wildfires.

And even though annual insurance payouts surpassed $1 billion only nine times since 1990, that threshold has now been surpassed for four years straight.

The Causes

More and more people desire to live in areas that are considered to be high-risk. This increased population has led to an increase in damages incurred through wildfires – as population density increases, so does the risk of property loss.

Research published in the Land Use Policy journal shows that there has been a steady increase in the numbers of people who are moving into dry, wooded areas and buildings homes and businesses there.

In response to the new crisis stemming from this season, which Insurance Commissioner Jones is now calling “the deadliest and most destructive wildfire in California’s history,” an emergency situation was declared in order to allow insurance companies to use adjusters not located in California to aid in handling the large volume of claims.

“We are taking action to make sure policyholders are protected as they begin navigating the claims process and rebuilding their homes,” the Insurance Commissioner said, reminding insurers and adjusters of their obligation to comply with state laws in order to aid wildfire survivors with coverage.

The Solution

California has fought wildfires for decades, with data sources going back to 1933. It’s not that wildfires are new, however, their impact to population is increasing as people and companies seek more space, build new markets, and continue their innovation contributions. For the people and companies who live and work in these higher-risk areas, having the right insurance coverage is paramount.

The potential for more frequent, and potential sever losses due to fire is not decreasing. For business owners that are looking to protect themselves from property damage of any kind, the best route to take is to find appropriate commercial property insurance to protect their physical assets.

Reviewing property values at least annually is the first step in the process. All too often, a business may grow, acquire more employees and things, but fail to report that growth to their insurers. Just as the supporting financial reports to the summary statements in a business are important, so are the details in the property and business interruption values.

The potential success and growth of a business can easily depend on whether the business owner has taken the time to assess your current coverage and institute risk mitigation techniques in order to identify any possible shortcomings that could potentially put the business at risk.

Yes, insurance is designed to be there when called upon, however, an active risk management strategy that includes pre-loss mitigation/loss prevention is also key.

If you need more help or information to intelligently insure your business, you can reach out to our team of expert brokers. Or, if you prefer to get started on intelligent quotes, create your Embroker account today.


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