The country — the entire U.S. but especially the West — is on fire. At the time this is written there are 100 fires burning around the country. Most aren’t even close to being controlled. In the dry conditions faced — especially in the West — fire has become the number-one disaster focus.
A good example of just how dangerous things can get in a hurry, take a look at what happened in Redding, California where nine people died. Some because the fire moved so fast. Others died battling the blaze.
In Kennewick, Washington over the weekend a brush fire quickly exploded and within a short time burned down five houses and destroyed several buildings.
Fortunately, no one died.
Every day we see reports of another dangerous fire with accompanying evacuation orders and too few firefighters to handle the blaze. Those fires often come with fatalities.
In California the Trump administration has — at the request of California Governor Jerry Brown — declared Redding’s the Carr Fire a major disaster. So residents of Shasta County now have access to federal funds to recover.
Brown said — as he did with last year’s wine country disaster — the president quickly stepped in to help. “The president has been pretty good on helping us in disasters, so I'm hopeful. Tragedies bring people together,” Brown said.
One of the discussions that has come out of the now 20 blazes burning in California is whether to hold public utilities 100% accountable for damages from fires their equipment causes.
Pacific Gas and Electric (PG&E) wants the California Legislature to enact legislation that limits that liability if they can prove they’ve maintained their equipment perfectly, are not negligent and the fire caused by that equipment in that case is an act of God.
As it stands now, the company is on the hook for $12 billion — and probably more — in damages from last year’s wine country fires in Northern California.
Insurance companies don’t want to see California’s laws changed. It then makes them responsible for the payments for the damages caused by those fires. They have powerful interests to battle in the issue. Among them is Governor Brown who is concerned the state will lose its utilities to bankruptcy if changes aren’t made and liabilities limited.
“Our whole program of trying to deal with renewable energy and mitigate climate change would be adversely affected,” Brown said.
PG&E spokesman Steven Malnight said, “This does not mean we will not be held liable if we are found to have done something wrong. We will be and we will pay. But we are taking this opportunity to remind the public that the status quo is unsustainable.”
What PG&E wants is not sustainable for insurance.
Property Casualty Insurers Association of America (PCI) vice president Mark Sektnan said, “We still strongly support inverse condemnation. This is a basic standard and does not need to be changed. The focus of any change should be on how we can be much more careful in what we do. If there is no spark, there is no fire.”
A.M. Best suggests one solution to the problems insurance experiences in California is to re-evaluate wildfire risks. The ratings company has noted that the most destructive fires last year were in areas classified as low to moderate risk by insurers.
In its report, Best said, “While it is too early to call it a trend with two consecutive devastating fire seasons, many observers are concerned that the combination of a growing population, increased construction as new homes and businesses are built in previously remote areas, and rising long-term temperature trends statewide may represent a new normal in California.”
Those fires — the report continues — were very expensive. “Despite a loss-affected 2017, most large writers in California are larger national companies and have enough capital to tolerate these back-to-back extreme wildfire seasons, helped by reinsurance partners,” the rating agency added.
Best suggests radical changes and changes that must be implemented soon.
“Less sophisticated insurers who may have suffered losses will have to use more sophisticated analysis for decision-making with regard to underwriting and pricing.
Pricing for perils such as smoke, ash, and brush fire may have to be re-evaluated. Terms and conditions for replacement cost values and living expenses will need to be more carefully examined for underwriting and pricing decisions.
In addition, insurers have been using risk scoring models to identify areas particularly exposed to wildfires and to better establish their risk appetite and tolerances,” the company concluded.
In conclusion: “Insurers may have to re-evaluate how they view risks in California and are highly likely to adjust pricing. The wildfires in 2018 and 2017 demonstrate the essential role insurers play in the economy during catastrophe-filled times and underscore the need for prudence in capital and risk management,” A.M. Best says.
Source links: The Washington Post, CBS News, Artemis