At nearly $5 billion, 2020 is already the third-highest year for California insured wildfire losses behind 2017 and 2018, according to Moody’s Investors Service.
In a new report, Moody’s says wildfires across California, Oregon, Washington and other western states have damaged or destroyed around 9,657 homes and commercial structures and burned more than 5 million acres.
This would result in overall insured losses of between $5 billion to $8 billion and has the potential to be compounded by the recent increase in demand for construction labor and materials following the wildfires and other recent catastrophes.
Moody’s notes how California homeowners insurers have not renewed policies, particularly in wildland-urban interface regions, while enhancing underwriting standards, conducting inspections, requiring homeowners to take steps to reduce wildfire risk and reducing geographic clustering.
Moody’s expects Oregon and Washington homeowners insurers to start taking similar actions following 2020 wildfire losses.
As with California insurers in recent years, Oregon and Washington homeowners insurers could file for rate increases following the 2020 losses.
Moody’s expects that reinsurers will incur a share of the wildfire losses, particularly from quota share, per risk and aggregate cover policies.
Aggregate cover policies cover losses from a number of small and midsize catastrophe events, each of which is typically too small to hit larger occurrence deductibles on its own, but collectively exceed an aggregate amount.
Before 2017, aggregate cover policies mostly covered tornado, hail and other storm events. As a result of the California wildfires of 2017 and 2018, aggregate cover policies have become more expensive and availability has declined.
Following significant property reinsurance pricing increases in 2020, Moody’s expects that pricing for catastrophe reinsurance policies including western wildfires will continue to increase in 2021.