The global catastrophe risk modeling and solutions company, Moody’s RMS, has estimated $4 billion to $6 billion of economic losses from the recent Lahaina conflagration and Kula wildfires in Hawaii.
The estimate includes property damage, contents, and business interruption, across residential, commercial, industrial, automobile, and infrastructure assets.
Although the economic loss estimate reflects direct and indirect losses from damage to physical assets, it is sans the macroeconomic factors such as expected reduction in the island’s Gross Domestic Product, government payments, or additional social costs due to the wildfires, says the risk modeller.
Moody’s RMS’ estimation process leveraged building-level damage assessments from multiple sources including analysis of satellite and aerial imagery in the worst-affected areas, and damage maps from the Maui Emergency Management Agency published on August 11, 2023. It also includes various sources of post-event loss amplification (PLA) and potential for coverage expansion noted after major wildfires on the U.S. mainland in recent years.
The damages that the town of Lahaina sustained were a catastrophic urban conflagration in the span of 12 hours that burned more than 2,100 acres (850 hectares) and destroyed almost 2,200 structures. Most of the overall losses are expected to be from this event.
Moody’s RMS estimates the burn footprints in Lahaina and Kula wildfires include insured property value in the range of $2.5 billion to $4 billion.
The majority of the economic damage is expected to be covered by insurance, approximately 75% or more. Given the fact that wildfire is a covered peril under typical insurance policies and the island has high insurance penetration rates. Additionally, several extenuating factors can drive losses higher than simple insured value estimates.
This dictates an insured loss range from Moody’s RMS of $3-$4.5 billion, as compared to the loss estimate from analysts at Bloomberg who estimated an insured loss between $2.5-$4.5 billion.
KCC estimated this fire to have been the second largest insured loss event to ever take place in Hawaii, with $5.52 billion worth of exposed structures.
Rajkiran Vojjala, Vice President Modeling, Moody’s RMS, said, “Post-event loss amplification is expected to be high in this event due to the island effect on supply chains, high construction labour costs in general, inflationary impacts during the expected long recovery time, and potential ordinance and law requirements.”
This event follows an unprecedented wildfire season in 2019 in Maui, when over 20,000 acres burned and attention on the islands to wildfire risk has never been higher.
Michael Young, Vice President, Product Management, Moody’s RMS, concluded, “When the rare situation of high wind and wildfire ignitions do occur again in the future, we need to be sure all the buildings comply with scientifically proven risk reduction features highlighted in programs such as the Wildfire Prepared Home program from Insurance Institute of Business and Home Safety.”
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