Catastrophe risk modeller Moody’s RMS Event Response has estimated insured losses from the Los Angeles fires will be between $20 billion and $30 billion but warns that significant uncertainty remains as some of the fires are ongoing.
Moody’s RMS released this preliminary estimate on Friday evening, when the Palisades Fire was 31% contained and the Eaton Fire 65% contained.
An update early this morning from the California Department of Foresty and Fire Protection reveals that the Palisades Fire is now 56% contained and covers more than 23,700 acres, and the Eaton Fire is now 81% contained, covering more than 14,000 acres.
The $20 billion to $30 billion range from Moody’s RMS reflects insured losses to date for the private market and California FAIR Plan from fire, smoke, and evacuation impacts from the five fires, including the two larger Palisades and Eaton Fires.
The FAIR Plan has more than $112 billion exposure, or 23% of its portfolio in LA Country as of September 30th, 2024, so losses to the Plan from the fires could be significant.
This estimated range includes losses from property damage, including evacuation and smoke damage, business interruption (BI), and additional living expenses (ALE) across residential, commercial, and industrial lines. The risk modeller explains that losses also consider a wide range of complex factors around reconstruction costs after the wildfires including cleanup, costs associated with permit fees, code improvements, and potential law and ordinance expenses.
“The ongoing Los Angeles firestorm events represent a unique and complex scenario that serves as a wakeup call for the market. As the events have unfolded over the last couple of weeks, great uncertainty remains from numerous elements including potential insurance gaps and underinsurance given the evolving insurance landscape, high-value building and contents exposure at risk, and significant additional living expenses (ALE) resulting from the evacuation of over 100,000 people,” said Mohsen Rahnama, Chief Risk Modeling Officer, Moody’s, commented.
“The wildfires caused extensive damage beyond property to critical infrastructure, including water systems and other utilities, with potential economic impacts that could be several multiples of insured property losses. This event will likely precipitate ongoing regulatory changes in California and accelerate usage of risk modeling to enable the insurance market to play its critical role in managing the dynamic risk landscape driven by exposure growth and climate change,” added Rahnama.
Damage assessment is ongoing and it will take some time before the ultimate economic and insured loss is fully understood, and Moody’s RMS highlights numerous contributing factors to the uncertainty. This includes complying with ordinance and law requirements when rebuilding, as well as coverage and extra expenses from high-value assets such as auto, fine art, collectibles, and valuable contents from properties in some of the affluent neighborhoods impacted by the fires.
Further, the risk modeller warns that demand for labor and materials will further escalate costs, especially if rebuilding is accelerated, which is certainly possible given LA is scheduled to host a range of major sport events in the coming years, including eight matches at next year’s FIFA World Cup.
“This firestorm is the most destructive and multifaceted wildfire event in U.S. history, with unprecedented levels of urban conflagration. However, this was not a ‘black swan’ event given the escalating wildfire risk in recent years. The comprehensive event catalog in our recently released Moody’s RMS U.S. Wildfire HD Model Version 2.0 includes numerous similar scenarios of extreme urban conflagration in exactly the same affected regions as the ongoing fires. By capturing the risk profile comprehensively, our models provide unparalleled insights to help the market understand and prepare for these catastrophic events,” said Firas Saleh, Director – North America Wildfire Models, Moody’s.
Moody’s RMS says that it is closely watching the situation in LA County and will issue a final insured loss estimate for these fires once they are fully contained.
This is the second insured loss range from risk modellers, after CoreLogic pegged insurance industry losses from the ongoing LA fires at up to $45 billion last week.
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