Specialist insurance and reinsurance broker BMS Group has noted that, while it is too early to provide a credible insured loss estimate for the Los Angeles wildfires, the total is likely to exceed $25 billion.
In a new report on the matter, Andy Siffert, Senior Vice President and Senior Meteorologist at BMS, emphasised that while multiple loss estimates are being circulated for the events, greater attention should be given to the replacement cost of damaged buildings rather than the land value.
“Authorities estimate that over 12,300 structures have been damaged or destroyed by the wildfires in the Greater Los Angeles area,” Siffert said.
He continued, “The Eaton Fire is estimated to have damaged or destroyed over 7,000 structures, and the Palisades Fire around 5,000 structures.
“Damage assessments are ongoing. It has been reported that the estimated average residential replacement values in the Eaton area are about $1 million and exceed $2 million in both the Malibu and Pacific Palisades areas.
“So, a quick estimate yields $17 billion in insurance losses to be the floor, but we know the insurance losses here will not be formed from this simple calculation.
“These losses will likely exceed $25B as several factors will start to come into play that lead to the question of just how high that loss might be.”
According to Siffert, further questions need to be addressed, particularly regarding the amount that will be paid out in additional living expenses, which could significantly increase the overall losses.
He noted that hyper-demand surges in labour and materials will no doubt be a significant factor in an already expensive area of the country.
“We know disasters like these will take years, if not decades, to recover, and there are questions about how quickly this will occur with permitting,” Siffert said.
He went on, “Still, clearly, the upcoming FIFA World Cup 2026 and Olympics 2028 could also strain resources as resources for skilled workers are limited. Many of the homes are bespoke and high-value, so it will take extra effort to understand designs and replacement costs.
“What factors will new laws and ordinances for either earthquake or wildfire might increase the rebuilding efforts of some structures? There are no doubt questions about possible fine art losses that might be more common in wealthy areas that have been affected. Smoke damage to structures outside the wildfire perimeter could add to the losses.”
Adjusters will be reportedly in high demand, raising concerns about potential litigation from claims disputes, which could drive up loss-adjustment expenses.
Meanwhile, estimating commercial losses is often more complex, and the resulting business interruptions are expected to further increase overall losses.
At the same time, however, Siffert said that some questions might lower the losses, adding, “How many structures are paid off and self-insured, and given that the CA Fair Plan only pays a maximum of $3 million on residential policies, how much loss is covered above this? Are these structures self-insured above this limit, which would only widen the protection gap? How many structures were undervalued, given the high rate of replacement cost?”
“The CA Fair Plan seems to be capped at $20 million per location with new reforms offering a high-value commercial coverage option at $20 million per building with $100 million cap by per location, but how many of these policies have been issued since the reforms went in place in July 2024?”
Siffert concluded, “The event is still ongoing, and the fires are far from contained, with higher winds forecasted over the next couple of days. For this reason, and the reasons mentioned above, it is too early to provide any credible loss estimate.
“Still, this will likely be the largest wildfire loss in modern times, surpassing the Paradise, CA Campfire of 2018, which would be a $11.1 billion wildfire event loss if it occurred today.”
Underscoring the uncertainty around the event, analysts at KBW recently raised their insured loss scenario estimate range for the LA wildfires to between $25 billion and $40 billion.
Analysts at Autonomous have also increased their insured loss estimate by 92%, forecasting a significant loss of up to $8 billion for California’s FAIR Plan.
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