Wildfire update

This month at Lloyd’s of London, Kennedys’ solicitors Neelam Buck and Emily Clift spoke to the market about wildfire risks, as part of a series on Emerging Risks provided in partnership with the under-35s claims group for Lloyd’s managing agents claims adjusters and Lloyd’s claims brokers (LMA LIIBA U35s).

The talk built upon the wildfires report issued in November 2017 by Kennedys’ Birmingham property damage team, and the supplementary US Perspective Report issued by the Kennedys CMK team in the US in January 2018.

The reports set out a detailed view, with case studies, of the increasing occurrence of wildfires worldwide, and satellite litigation arising from these instances. This is happening in the US and the UK as well as other countries, and certainly impacting upon underwriters at Lloyd’s as well as corporate insurers and reinsurers.

Since the reports were published, updated news has continued to flow in about the so-called “Wine Country” fires occurring North Bay, northern California in October 2017. Insurance claim figures released by the California Insurance Commissioner at the end of January 2018, show $10bn in estimated insured losses for the North Bay fires. Combined with nearly $2bn estimated insured losses arising from fires near Los Angeles in December 2017, California has won the dubious accolade of having had the most costly wildfire year in US history.

The developing situation provides a real-time look into the various issues explored in the reports.

Recent events have included the following:

• Most insurers of residential properties destroyed by the fire responded positively to the call from California Insurance Commissioner Dave Jones to assist residents, pledging to pay 50% or more of property claims without requiring itemised lists.
• There are moves to strengthen insurance consumer protection in California, with eight legislative bills unveiled on 16 January 2018 (see the November 2017 Report for more details of wildfire mitigation and incentivising policyholders to reduce risk).
• At least 30 wineries in or around Napa are reported to have been affected, with at least 12 destroyed and losses to businesses likely to be in the billions, according to Catastrophe risk modeller RMS, not including possible longer-term business interruption.
• Some wineries, who were still harvesting grapes at the time, are reportedly struggling with some specialist insurance policies which included restrictions on cause of grape spoilage, and cover for crops but not vines (which will need years to be replaced).
• Many examples of the types of satellite litigation discussed in the US report have come to light, with reports suggesting that:
  • At least 10 customers of USAA insurance are suing them and a software provider after relying on them to set coverage levels for household insurance, which was found to be lacking.
  • Some claimant law firms say that over 95% of homeowners they consulted had some level of under-insurance.
    Over 100 homeowners filed claims against Pacific Gas & Electric (PG&E), whose power-lines are alleged to have caused the fire, in proceedings being managed in San Francisco.
  • Sonoma County announced in January 2018 that it will also sue PG&E for the costs of clearance, rebuilding and safety measures not covered by insurance or the federal government, which it estimates will be between $9m and $25m.
• Insurance Commissioner Jones has pointed out that damage resulting from recent mudslides will need to be addressed by insurers if the fires are shown to have been the proximate cause of those mudslides.

The co-ordinated, structured approach to mitigation and cooperation called for in Kennedys’ reports is clearly coming into play in California, but still has a way to go. In the UK and Europe where wildfires might still be classed as an emerging risk, we can learn a lot from our US cousins (and global insurers and reinsurers of US risks).

The year 2017 was a big year for catastrophes. Last month it was reported that Swiss Re considers that wildfires in California helped push the group’s property and casualty operations to a $1.15 loss for 2017, in combination with the other catastrophes that marked 2017 such as Cyclone Debbie in Australia, earthquakes in Mexico and Atlantic hurricanes affecting parts of the US and Caribbean. Several other insurers and reinsurers increased their estimates of loss and ended up in the red in 2017. The Managing Director of one Lloyd’s syndicate who managed to remain in the black cited “exceptional” underwriting performance as a factor.

However, even with increased understanding of catastrophes like wildfires, they remain very difficult to predict. Awareness and preparation are just the starting point.