Reinsurance broker Guy Carpenter has estimated that the Lahaina wildfire will result in an insured loss of between $4 billion and $6 billion, making it the second costliest disaster in Hawaii’s history since Hurricane Iniki in 1992.
The devastating wildfire caused 115 fatalities and over 1,000 people are still missing, making it the deadliest wildfire in over a century in the United States.
Guy Carpenter’s estimate is at the higher end of a range of insured loss estimates for the event. RBC pegged insured losses at $3 billion, KCC at $3.2 billion, FEMA at $5.5 billion, Moody’s at $3 billion to $6 billion, the State of Hawaii at $5.6 billion, and Moody’s RMS at $3 billion to $4.5 billion.
The broker notes that the wide range of estimates is due to uncertainties in demand surges and business interruption in an island economy. Given these factors, Guy Carpenter estimates the insured losses will end on the higher end of the range of industry viewpoints based on an analysis of the largest wildfires in the state of California.
The fire ignition occurred in the upslope of Lahaina and rapidly spread due to strong winds, it quickly turned into an urban conflagration with structure-to-structure spread via ember transport.
Being located in the middle of the Pacific Ocean, there are several factors that increase the uncertainty of ultimate incurred losses for the insurance industry, says Guy Carpenter.
This includes demand surge, which the broker notes after Hurricane Maria in 2017 in Puerto Rico, increased the overall cost by 20% to 35%. However, with Hawaii much further from the mainland, it is possible demand surge could be higher.
Business interruption is also an uncertainty. According to Guy Carpenter, North of Lahaina is a large tourism district, notably the towns of Ka’anapali and Kapalua. A survey of large hotels indicates there is on average a 30 to 90-day reservation cancellation due to housing of homeless citizens and ingress/egress issues.
The reinsurance broker also highlights uncertainty surrounding debris removal costs. In total, the average cost of debris removal from the latest California wildfires of the last decade ranges from $1-3 billion. While the cost is largely borne by federal, state and local entities, it can also increase claims severity, warns the firm.
“Additionally, the population growth of Maui over the last fifty years has significantly outpaced the state of Hawaii. The town of Lahaina experienced 28% growth since 2000, with increasing density of housing and businesses due to limited area of buildable land. The pace of spread overwhelmed fire fighting resources resulting in the deadliest fire in over 100 years for the United States,” notes the broker.
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