In an aerial view, homes and businesses are seen that were destroyed by a wildfire on Aug. 11 in Lahaina, Hawaii.Justin Sullivan/Getty Images
The Maui wildfire that devastated the town of Lahaina is expected to cost insurers up to US$3-billion in damages, creating one of the largest insured losses in Hawaii’s history, according to an analyst report.
More than 2,200 structures have been damaged or destroyed, RBC Capital Markets analyst Scott Heleniak said in a research report Monday. “We expect industry insured losses in the low single-digit billions range as of the time of writing.”
“As of now, our best estimate on total insured losses is in the US$2-billion to US$3-billion range.”
At least 96 people died in the wildfire last week, which quickly tore through the western part of Maui – a popular tourist destination. The intensity and speed of the wildfire was magnified by strong winds from Hurricane Dora, which was passing south of the island.
The RBC report estimates that some of the largest U.S. insurers will see some “manageable” losses, including State Farm Insurance, Tokio Marine Holdings Inc. TKOMY and Allstate Corp ALL-N.
Canadian insurer Fairfax Financial Holdings Limited FFH-T is among the bottom end of the top 15 insurers by market share that provide home policies in the state. However, the RBC report estimates its exposure to be minimal, as it holds just 1.1 per cent of the Hawaii homeowners’ insurance market. With just $4.9-million in direct house insurance premiums written in the state, it is a “fraction of their national business,” the report says.
Fairfax did not respond to The Globe and Mail’s request for comment.
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Karen Clark, founder of catastrophe modelling firm Karen Clark & Company, indicted the loss is likely to be “at least the second-largest in the state’s history” – trailing Hurricane Iniki, which destroyed 1,421 homes in 1992. Iniki also damaged a further 5,152 homes, generating a total US$1.6-billion of insured losses, which represents roughly $3.5-billion in current value.
Data from the U.S. Federal Emergency Management Agency suggest that 86 per cent of the buildings damaged in the Maui fires were residential. As a result, analysts predict those insurers who sell the homeowners’ multiperil policies will see the largest impact.
The losses in Maui are estimated based on the assumed price of about US$1-million per home, the RBC report said.
Rob de Pruis, national director of consumer and industry relations for the Insurance Bureau of Canada, said in an e-mail to The Globe that while the Canadian industry expects to see “a handful” of personal property claims, they will be “a small minority of overall claims as residential homes in Hawaii would likely be insured by a U.S. insurer, as opposed to a Canadian insurer.”
As well, he added, there is unlikely to be any significant direct impact to Canadian insurers from the Hawaiian wildfires, “as much of the loss reported will be covered by reinsurers.” (Reinsurers are typically global companies that take on some of the risk and provide financial protection to insurance companies.)
“As reinsurers are global, Canadian insurers who purchase reinsurance from these providers could eventually be impacted, depending on the reinsurers’ exposure to this event and others worldwide,” Mr. de Pruis added.
Nadja Dreff, head of insurance services in Canada for DBRS Morningstar, said as the number of extreme-weather events and natural catastrophes increase around the globe, the entire insurance industry will begin to feel an impact.
For example, reinsurers could start to raise their fees for insurance companies to continue to provide coverage to high-risk regions.
In the U.S., where insurers are limited to government-implemented price caps on premiums, the industry impact has already been more severe, with several large-property insurers permanently halting the sales of new policies in high-risk regions.
While Canada has seen a rampant wildfire season across the country, including in Quebec, Eastern Canada and Western Canada, where fires have continuously burned for months, the fires have not produced the “kinds of losses some may expect,” Ms. Dreff said.
“The Quebec wildfires were not close to urban centres and there has been a minimal loss of life,” she added.
“Unfortunately, in Hawaii, that’s not the case. I’m really shocked at the reported loss of life, which has certainly outsized any loss of life compared to fires affecting similar sized areas.”