A few days after the Maui fires, Roy Wright, head of a research organization funded by the insurance industry, began assembling a team.
His team’s job is to carefully analyze how fires spread once they reach an inhabited area, looking for clues such as how burning embers reached buildings that were not yet on fire, and whether things like fences, plants and sheds near different homes helped put out the fires. The fires spread.
“We’re focused on the point where fires seep into neighbourhoods,” said Wright, chief executive of the Insurance Institute for Home and Business Safety, which investigates the causes of large insurance losses and suggests ways to reduce them.
Weeks after at least 115 people were killed in wildfires in Maui, insurance companies have begun assessing damages to calculate their payments. Preliminary estimates of the total cost of the fires range from $4 to $6 billion, according to a report by risk management agency Moody’s.
But private insurers, already grappling with the costs of climate-related disasters in California and Florida, are also re-evaluating the home insurance market they have long considered lucrative and predictable, and whether they should charge higher rates to Hawaiians.
Shaun Kent, insurance broker at FirstService Financial, said another unexpected catastrophic event “would have a global impact on the underwriting community”.
Hawaii was not on the minds of insurance companies. With few natural disasters since Hurricane Iniki in 1992, and therefore few payouts, Hawaii has offered the highest return on investment for insurance companies looking for calm waters. The models insurers use to maintain their profits – which make predictions based on historical data – seem to support this.
Although the Hawaii market is unlikely to suffer the same fate as Florida and California, which many private insurers left entirely, experts expect companies to seek higher rates in the state to reflect a more precarious environment. Raising rates requires state approval, and public officials may be reluctant to agree to much higher rates. But if rates go up, homeowners are likely to suffer the consequences. Insurance companies set out to find out what went wrong in Hawaii and how they could better prepare for the next disaster.
Major insurers may not immediately feel the pressure in Hawaii, as the state has historically been profitable for them. According to an analysis by Shan Ji, a New York University finance professor who studies the insurance industry, Hawaii had the highest margin rates for home insurance of any state from 1996 to 2021, as insurers raised premiums for homeowners without having to pay as much. Claims.
Insurance companies primarily consider two factors when determining how much and where to cover: the frequency of claims and the severity of those claims. The Maui fires are another data point for losses for insurers. The business of making a profit becomes more difficult for insurance companies as severe weather events become more frequent and powerful.
The Maui fires have come at a time of crisis for the global insurance market, as the recurrence of costly disasters caused by climate change has clouded insurers’ accounts, making it difficult for them to access fresh capital. Since the beginning of the year, insurers have paid more than $40 billion in damages, a record pace in annual losses.
Subsidiaries of insurance companies, also known as reinsurance companies, form an important part of the equation. Reinsurers have been losing money for years and have had to raise their rates. Companies like State Farm and Allstate have in turn cited those higher prices as a reason to pull coverage in some places.
“What you’re seeing and what you’re seeing is that insurers and reinsurers are exposing in these risks that climate change is challenging their ability to model and insure,” said Christine Jacconi, a professor of accounting at the University of Southern California. Disaster risk, given the increasing frequency and intensity of these weather events.
The Moody’s report found that the value of insured property ranged from $2.5 billion to $4 billion affected by the fires in Lahaina and Kula. For insurers, that means lower payments than in recent disasters like Hurricane Ian, which caused $113 billion in damages in Florida last September. But even if the measured losses from the fires are not relatively large, they can have a negative impact on insurers across the country.
Members of Mr. Wright’s team at the Insurance Industry Institute analyze satellite and aerial footage. Later, they will start collecting information from Earth. Their mission: to find out exactly how a fire spreads once it reaches a populated area.
Wright said the researchers will closely study the structures that survived to try to figure out what made them more resilient. Indeed, they determined that one housing development that survived did so because its buildings had roof vents that prevented burning embers from blowing in, more flame-resistant materials in the ceilings and walls, and fewer large plants close to the walls.
Ultimately, his organization will make recommendations on how to build new structures that can better withstand wildfires and how to upgrade buildings in nearby areas to try to protect them from a fate similar to Lahaina’s.
“At the end of the day, we’re trying to reduce future risk,” Wright said. “Insurers want to know: Did this happen in ways we expected or were there nuances or outliers in this case that surprised us?”
Fire victims are just beginning to reach out to insurance companies and other sources of aid to try to recover some of the value of what they’ve lost and to start rebuilding. Tim Shearer, 58, founder and co-owner of Goofy Foot Surf School, said his storefront, in a shopping complex built along the beach in Lahaina, burned to the ground.
Mr Shearer said he considered himself lucky. He escaped the fire unharmed, and heard that the newly constructed building in which he had recently bought a flat—right next door to his business—was still standing. The residential complex is built of concrete. The shopping arcade where I rented Goofy Foot’s space was made of wood.
Mr Shearer said he had time to go to Goofy Foot and salvage a few things before the flames got to him. In the hours leading up to his eviction, he said, he filled his truck with boxes of photos and some important papers.
“When I think about it, if I had known it was going to burn, I would have taken more,” he said.
His contact with private insurance companies would be minimal because he had no Goofy Foot property insurance, and the only insurance coverage he had on his flat came through a homeowners association.
Mr. Shearer is staying at a friend’s house across from Maui. He said he met a dozen or so friends from Lahaina who were also trying to get help.
“Every time you see someone you know, you feel a sense of relief, like the catchphrase here: I’m fine,” Shearer said. “Compared to all the people who lost their lives and their family members, few things were lost.”