Large carriers with geographic spread across the US will likely have the capital and reinsurance coverage to absorb losses caused by the Maui wildfires, though there is a greater concern for the smaller, more concentrated carriers that underwrite more of their policies in Hawaii, suggests a new report from AM Best.
Despite the impacted lines accounting for more than 10% of direct premium written for just three companies, with the largest concentration being a little more than 30%, AM Best stated that the capital plans, reinsurance, and enterprise risk management programs of the smaller carriers will likely be severely impacted.
AM Bests reports explained, “Generally, there is less debate on coverage when losses occur due to fire.
“With wind-based storms, there is an element of whether the damage was caused by wind or by flood, which could shift responsibility to government backstops.
“Carriers dealing with claims related to the Maui wildfire will likely face supply shortages and pricing volatility with regard to providing available dwellings for temporary use, whether hotel space or rental platforms such as Airbnb or VRBO.
“The issues that insurers in Hawaii will face will be related to cost and supply chains, as well as inflation and a surge in demand for more fire-resistant materials that may not be readily accessible.”
The rating agency noted that the demand surge for such materials will increase the cost precipitously of rebuilding as well as retrofitting existing structures.
AM Best added, “Investigations into the origin of the fires continue. When the investigations are completed, there may be subrogation opportunities for carriers.”
The rating agency concluded, “Similarities are being drawn to the situation with PG&E regarding the 2018 California wildfires, if investigators find that power lines were the cause and that more effective risk mitigation measures should have been taken prior to the wildfire breakout.
“We estimate that the US insurance industry has about $1.1 billion in bond and stock exposure to Hawaiian Electric, with 98% of exposure coming from bondholdings and life/annuity insurers accounting 95% of the exposure.”
