Western U.S. wildfire insured losses estimated up to $8bn by RMS

Insurance and potentially reinsurance market losses from the ongoing wildfires across western U.S. states are now estimated to have reached between $4 billion to as much as $8 billion, by catastrophe risk modeller RMS.

Image: Noah Berger / AP.

The range is closely aligned with Moody’s prediction for industry losses from the wildfires so far this year, who said a week ago that the industry’s bill was now likely in a range from $5 billion to $8 billion.

With wildfires continuing to burn and another period of heatwave conditions forecast for next week across the affected western U.S. states, in particular California and Oregon, the 2020 U.S. wildfire season looks set to be another costly one for the insurance, reinsurance and insurance-linked securities (ILS) markets.

Estimates for losses from the wildfires have risen considerably through September, particularly as the Oregon fires have wrought such destruction in residential areas.

Just two weeks ago, the industry had been discussing losses at a lower level, with most discussions with our sources around that time suggesting a $2 billion to $3 billion maximum cost to the insurance and reinsurance industry.

That has escalated quickly though, with the market now looking at another significant impact from wildfire property damages again in 2020.

RMS warned that the losses to property and costs from business interruption due to wildfires are expected to rise further, with major wildfires still active in California, Oregon, and Washington states.

RMS sees the industry insured losses in northern California in a range from $3 billion to $5 billion, while the industry loss from the wildfires in Oregon and Washington is seen in a range from $1 billion to $3 billion.

As of September 20th 2020, RMS has counted 13,500 structures damaged or destroyed by the wildfires.

Michael Young, Vice President, Product Management commented, “While this season is exceptionally noteworthy on many fronts, I want to highlight a silver lining: 30 to 60 percent of structures in many of these mega complex footprints actually survived the fire. This is because building science has identified many factors that increase the survivability of structures such as wildfire-resistant vents. We need to find bold ways to duplicate those measures at scale. If this is the new normal, we can’t afford not to embrace effective steps towards mitigation.”

RMS said that its estimates include losses from property damage, including evacuation and smoke damage, business interruption (BI) across residential, commercial, industrial lines, and additional living expenses (ALE).

The risk modelling firm noted that, “Smoke and evacuation are significant contributors to losses during the ongoing Western U.S. wildfires, contributing about 20 percent of losses in Northern California fires and about 35 percent in Oregon and Washington fires, respectively.”

The estimates are based on analysis using RMS’ U.S. Wildfire HD Model, which covers the contiguous U.S. and explicitly simulates ember and smoke to support detailed analysis of the impact of a wildfire beyond just its historical fire perimeters.

A lot of models don’t consider the impacts beyond the burn scar itself, nor do they take into account how properties outside of the burn can be impacted by flying embers.

RMS’ modelled estimate analysis was augmented by Damage Inspection Specialist (DINS) damage surveys for California Fires, plus analysis of the published damage reports for Oregon and Washington fires, as well as the RMS U.S. Wildfire Industry Exposure Database.

ILS fund manager Plenum Investments recently warned that the ongoing wildfires may put investor focus back onto aggregate catastrophe bonds, as some of these have faced losses on the back of wildfire events in the last few costly seasons.