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Forest fire insurance costs soar

FILE PHOTO: A group of U.S. Forest Service firefighters monitor a back fire while battling to save homes at the Camp Fire in Paradise, California, U.S. November 8, 2018. REUTERS/Stephen Lam/File Photo

MUNICH (Reuters) – Forest fires are becoming increasingly likely because of climate change and cost insurers more than ever, with the deadly fire that ravaged northern California the single most expensive natural disaster in 2018, Munich Re said on Tuesday.

The California wildfire that devastated the small town of Paradise in November caused losses of $16.5 billion, of which $12.5 billion were insured, according to the reinsurer’s annual catastrophe report.

Worldwide natural disasters caused $160 billion in economic damage in 2018. That was down from $350 billion the previous year, but a number of devastating hurricanes had contributed to the high losses in 2017.

Insurers and reinsurers paid out $80 billion for natural disaster claims last year, down from $140 billion a year earlier but almost double the 30-year average of $41 billion, the reinsurer said.

Munich Re board member Torsten Jeworrek said that 2018 was marked by several severe natural disasters with high insured losses.

“These include the unusual coincidence of severe cyclones in the U.S. and Japan, and devastating forest fires in California,” he said, adding that climate change appears to be making such large fires more common.

Insurers spent $18 billion on two huge fires in the United States in 2018 – equivalent to one in every four dollars they paid out as a result of natural disasters.

Ernst Rauch, the reinsurer’s chief climatologist, told Reuters that forest fires were entering a whole new dimension, costing tens of billions of dollars.

“Higher and higher temperatures are leading to ever greater droughts, and high humidity in the winter means that shrubbery grows quickly, creating an easily flammable material in dry summers,” he said.

Rauch said it was questionable whether areas at high risk could continue to be populated without taking additional measures, such as building houses further from forests and with better safety standards.

In Europe, an unusually hot summer caused a drought that wrought considerable damage on the agricultural sector and was the continent’s most expensive natural disaster at $3.9 billion. However, only a fraction of those losses were insured.

Reinsurers act as a financial backstop to insurance companies, paying a chunk of the big claims for storms or earthquakes in exchange for part of the policy premiums.

Hurricanes and typhoons caused $56 billion of damage last year. Hurricane Michael, which wrought devastation in Florida, was the most expensive for insurers, causing losses of $10 billion.

The review gave no claims figures for Munich Re itself. The reinsurer is due to report fourth-quarter results on Feb. 6.

(Reporting by Alexander Huebner; Writing by Caroline Copley; Editing by David Goodman)

As California fires blaze, homeowners fear losing insurance

Local residents react as numerous homes burn on a hillside during a wind driven wildfire in Ventura. REUTERS/Mike Blake

By Suzanne Barlyn

(Reuters) – California homeowners and regulators have a new fear about wildfires ravaging the state: that insurers will drop coverage.

Massive, out-of-season fires in northern and southern California are causing billions of dollars in claims and challenging expectations of when and where to expect blazes. State law gives insurers more leeway to drop coverage than to raise rates, and some are taking the opportunity, concerning California Insurance Commissioner Dave Jones.

Homes in the Sierra Nevada foothills were dropped after wildfires swept through the region in recent years, and some other Northern California homes also have been cut from rosters, Jones said.

“We may see more of it,” he added in an interview. Insurers must renew fire victims’ policies once, but after that homeowners could be driven to unusual, expensive policies.

Retired firefighter Dan Nichols of Oroville, California was surprised when Liberty Mutual dropped his coverage this year, following a wildfire in the region.

“I was shocked and angry,” said Nichols, 70, by email.

Liberty Mutual must “responsibly manage” its overall exposure to California’s wildfires as part of a strategy to safeguard its ability to pay homeowners’ claims, a spokesman said. The insurer still issues policies in California and its strategy is not in response to recent fires, he said.

Nichols found a better deal through AAA, but others are not as lucky. In San Andreas, a community northeast of San Francisco, homeowners typically use specialty insurers, known as “surplus lines carriers,” for policies that cost about 20 to 40 percent more than a mainstream insurer, said Fred Gerard, who owns an insurance agency in the area.

Insurers must be cautious by not covering too many homes in one area, said Janet Ruiz, a spokeswoman for the industry’s Insurance Information Institute. “They tend to spread their risk so they can pay claims,” Ruiz said.

COMPUTER MODELS

Drier weather and higher variability of weather patterns often seen as effects of climate change have led insurers to turn to new computer models that provide house-by-house predictions of risk, using factors such as local topography and brush cover, a change from past practices that were based on a region’s history of blazes.

“Relying solely on company history leaves many (insurers) exposed,” said Matt Nielsen, Senior Director, Global Governmental and Regulatory Affairs at modeler RMS. A new wave of models coming out next year will “revolutionize the way insurers understand and manage risk for wildfires,” he said.

“You can’t control mother nature, but you can identify her target zones,” wrote rival Verisk Analytics Inc in a brochure for its FireLine model.

Jones said the state was reviewing the new models, partly in light of drier weather conditions, more frequent, unpredictable and severe fires, and climate change.

A California poll by consumer advocacy group United Policyholders found that computer scoring was a reason for a significant number of policy cancellations in the last few years.

United Policyholders Executive Director Amy Bach said that the differences in scores generated by various models raised questions about their accuracy.

“We want to make sure it’s a fair system,” Bach said.

(Reporting by Suzanne Barlyn; Editing by Peter Henderson and James Dalgleish)

White House plans to seek another $45 billion in U.S. hurricane aid

By David Shepardson

WASHINGTON (Reuters) – The White House plans to ask the U.S. Congress on Friday for about $45 billion in additional aid for disaster relief to cover damage from hurricanes that struck Puerto Rico, Texas and Florida and other disaster damage, a congressional aide said on late Thursday.

The request would be significantly short of what some government officials say is needed.

Puerto Rico Governor Ricardo Rossello on Monday requested $94.4 billion from Congress to rebuild the island’s infrastructure, housing, schools and hospitals devastated by Hurricane Maria. The state of Texas earlier this month submitted a request for $61 billion in federal aid.

Last month, Congress approved $36.5 billion in emergency relief for Puerto Rico and other areas hit by recent disasters and said it planned to seek another round of funding after it reviewed requests from federal agencies and state and U.S. commonwealth governments.

Puerto Rico sought $31.1 billion for housing, followed by $17.8 billion to rebuild and make more resilient the power grid.

Senator John Cornyn, a Texas Republican, said late Thursday at a congressional hearing his staff had been briefed on the White House that would be released on Friday that he called “wholly inadequate” but he did not disclose the precise amount.

He said the White House had also “short-changed” funding for wildfires that have struck the western United States. The October disaster assistance bill included $576.5 million for wildfire-fighting efforts.

The White House did not immediately respond to a request for comment late Thursday.

(Reporting by David Shepardson; Editing by Sandra Maler)

Business group pushes for U.S. flood insurance reform as December deadline looms

By Ginger Gibson

WASHINGTON (Reuters) – The latest attempt to overhaul the U.S. federal flood insurance program hit a stumbling block, but a coalition of business and environmental groups renewed their push on Wednesday for lawmakers to enact an overhaul before the program expires on Dec. 8.

The SmarterSafer coalition sent a letter to members of the U.S. House urging passage of the compromise legislation that would extend to 2022 the federal program that has been heavily utilized after vast flooding from hurricanes Harvey and Irma.

“This legislative package moves the flood program in the right direction and contains needed reforms that will better protect those in harm’s way, the environment, and taxpayers,” the letter states, according to a copy seen by Reuters.

The hurdle came with the House Rules Committee indefinitely postponed a hearing on the bill that was scheduled for Tuesday night.

“Clearly they’re trying to make sure they’ve got all their ducks in a row and they’ve got all the votes they need,” said Steve Ellis, with the conservative group Taxpayers for Common Sense, which is part of a coalition pushing for reform of the program.

Joshua Saks, the legislative director of the National Wildlife Federation, said one of the shortcomings of the compromise is that it does not ensure that the money for flood mitigation projects will ever be spent.

“We need an Apollo project of mitigation right now, we need billions right now up front,” Saks said, referring to the project that put a man on the moon.

Two prominent Republican members of the U.S. House announced last week they had struck a deal that would extend the life of the program that covers most of the nation’s flood-prone properties.

House Majority Whip Steve Scalise of Louisiana and House Financial Services Committee Chairman Jeb Hensarling of Texas brokered the compromise and said the deal helps policy holders and taxpayers.

Last month, President Donald Trump signed a $36.5 billion disaster relief bill, including $16 billion in forgiveness of some debt in the National Flood Insurance Program, which insures about 5 million homes and businesses.

(Reporting by Ginger Gibson. Additional reporting by David Shepardson.)

Insured losses from deadly California wildfires could hit $3 billion

By Keith Coffman

(Reuters) – Insured property losses from wildfires that raged through Northern California wine country this month, killing at least 42 people and destroying thousands of businesses and homes, could total $2 billion to $3 billion, a risk-modeling firm said on Thursday.

The analysis by Boston-based AOR Worldwide, encompassing anticipated claims for destroyed residences, automobiles, commercial properties and other economic losses, is at least double a preliminary tally estimated last week by the California Department of Insurance.

The AOR report said losses would be dominated by devastation in residential areas, especially in Sonoma County, where entire neighborhood blocks were reduced to ashes.

Since erupting on Oct. 8, the wind-driven wildfires have consumed some 245,000 acres across several California counties north of the San Francisco Bay area, leaving at least 8,700 structures destroyed.

Most of the property loss was concentrated in California’s celebrated wine country, including Sonoma County, the California Department of Forestry and Fire Protection, or Cal Fire, said this week.

Authorities have confirmed 42 fatalities in Sonoma and three other Northern California counties, among them a volunteer firefighter who was killed when his water-tender truck crashed. The death toll marked the greatest loss of life from a single wildfire event in the state’s history.

The $1 billion gap between the low- and high-end estimates was due to uncertainty surrounding how many claims will be filed for living expenses from residents forced to flee their homes, as well as for smoke damage and business disruptions caused by power outages, AOR Worldwide said.

Another unknown factor is the scope of damage that may have occurred during fire suppression efforts, it added.

A preliminary estimate from the California Department of Insurance a week ago put insured losses at just over $1 billion, although it said that figure would likely rise.

A spokeswoman with the department said on Thursday that the agency has not updated its figures.

The October wildfire outbreak was fueled by unseasonably high temperatures, tinder-dry conditions, and gusty winds. As of Thursday, most of the fires were near, or at, full containment, Cal Fire said.

Cooler weather forecast for the region in coming days should ease the wildfire risk, AOR said in its report, although Cal Fire urged the public exercise caution to avoid igniting further blazes as warm, dry weather lingers across parts of the state.

(Reporting by Keith Coffman in Denver; Editing by Steve Gorman and Michael Perry)

Lloyd’s of London estimates Maria claims of $900 mln, cuts Harvey, Irma estimates

Buildings damaged by Hurricane Maria are seen in Lares, Puerto Rico, October 6, 2017. REUTERS/Lucas Jackson

LONDON (Reuters) – Lloyd’s of London estimated net claims of $900 million for Hurricane Maria, which caused devastation in Puerto Rico last month, the specialist insurance market said on Monday.

Lloyd’s also revised down its net claims estimates for hurricanes Harvey and Irma, which hit the United States in recent weeks, to $3.9 billion from initial estimates of $4.5 billion.

Insurers and reinsurers are counting the costs of the three hurricanes, which together with earthquakes in Mexico and wildfires in California, are adding up to a heavy year for natural catastrophe losses.

Lloyd’s said it had already paid $900 million in claims for the three hurricanes.

“We are experiencing one of the most active hurricane seasons this century,” Jon Hancock, Lloyd’s performance management director said.

“While it is clear that these catastrophes will bear a heavy toll, the claims are spread across the entire Lloyd’s market, which has total net financial resources of 28 billion pounds ($36.92 billion).”

Hancock said that while Lloyd’s was cutting its earlier estimates for Harvey and Irma, “this is a developing situation and there continues to be a high degree of uncertainty around any claims estimate”.

(Reporting by Carolyn Cohn; editing by Maiya Keidan)

Merck cyber attack may cost insurers $275 million: Verisk’s PCS

NEW YORK (Reuters) – Insurers could pay $275 million to cover the insured portion of drugmaker Merck & Co’s loss from a cyber attack in June, according to a forecast by Verisk Analytics Inc’s Property Claim Services (PCS) unit.

Merck, however, has not disclosed the magnitude of its uninsured losses from the “NotPetya” attack, which disrupted production of some Merck medicines and vaccines.

The company was among dozens of firms worldwide hit in the June 27 attack, which began in Ukraine, then rapidly spread through corporate networks of multinationals with operations or suppliers in Eastern Europe.

“Merck has not yet fully quantified its losses, much less given any of its insurers an estimate of the total amount of those losses,” Merck spokeswoman Claire Gillespie said in a statement.

She reiterated that Merck has insurance that would cover some costs, but declined to elaborate or say how much Merck expects to have to pay on its own.

The drugmaker said in July that it had suffered a worldwide disruption of its operations as a result of the malware. It was still in the process of restoring its manufacturing operations a month later.

Merck said then that it was confident it would be able to maintain a continuous supply of its top-selling and life-saving drugs, but warned of temporary delays in delivering some other products.

NotPetya is a destructive virus that spread quickly across computer networks, crippling computers by encrypting hard drives so that machines cannot run. The attacks caused massive disruptions to industrial networks that rely on computers because businesses must individually replace damaged drives, a labor-intensive process.

Cyber insurance can be expensive to buy and is not widely used outside the United States, with one insurer previously describing the cost as $100,000 for $10 million in data breach insurance.

Policies typically cover expenses stemming from a data breach, such as forensics and data restoration, among other costs. Coverage also helps pay for business interruption expenses when a breach or malware attack shuts down a company’s website.

Some companies without cyber insurance have used their policies covering kidnap, ransom and extortion to recoup losses caused by ransomware viruses.

PCS provides estimates on a wide variety of insured losses, ranging from damages caused by hacks to hurricanes and wildfires.

(Reporting by Michael Erman in New York and Noor Zainab Hussain in Bengaluru, additional reporting by Suzanne Barlyn; editing by Jim Finkle and G Crosse)

California Dept of Insurance estimates wildfires losses at $1.05 billion

By Suzanne Barlyn and Sangameswaran S

(Reuters) – The California Department of Insurance said on Thursday its preliminary estimate for insured wildfire losses was $1.05 billion, based on claims received by the state’s eight largest insurers, adding that it expected the numbers to rise.

Insurers have received 601 claims for commercial property losses, 4,177 claims for partial residential losses and 3,000 claims for auto losses, said California Insurance Commissioner Dave Jones during a media call.

Since erupting on Oct. 8 and 9, the blazes in parts of Northern California have blackened more than 245,000 acres, (86,200 hectares) and destroyed an estimated 6,900 structures as of Thursday, including homes, wineries and other commercial buildings.

More than 15,000 people remain displaced, the California Department of Forestry and Fire Protection, said on Thursday.

A fire that started Monday in the Santa Cruz Mountains now threatens 300 homes, Jones said.

Residents of Northern California’s wine country left homeless by the state’s deadliest-ever wildfires could be temporarily housed in federal government trailers, officials said on Wednesday, as the death toll from the blazes rose to 42.

Moody’s Investor Service estimated insured losses at $4.6 billion on Monday, based on an earlier figure of 5,700 destroyed structures, according to a report.

Insurer Travelers Cos Inc <TRV.N>, which announced its third quarter results on Thursday, also warned investors of large claims likely this quarter from the wildfires.

The company paused a share repurchase plan in September to conserve cash as it reviewed claims from Hurricanes Harvey and Irma, which made landfall in September and October, and it is still evaluating that position in the light of wildfire claims, said Travelers Chief Executive Alan Schnitzer on a conference call with analysts.

State Farm is California’s largest homeowners insurer and sixth-largest commercial fire insurer, according to a Moody’s analysis.

The insurer, as of Thursday, received 3,220 homeowners insurance claims and 1,110 auto insurance claims, mostly from damage sustained in Napa and Sonoma Counties, a spokesman said.

Other large insurers in California include Farmers Insurance, CSAA Insurance Group, Travelers and Allstate Corp <ALL.N> and Chubb Ltd. <CB.N>.

(Reporting by Sangameswaran S in Bengaluru and Suzanne Barlyn in New York; Editing by Shounak Dasgupta and David Gregorio)

Trump expected to sign order side-stepping Obamacare rules

FILE PHOTO: U.S. President Donald Trump calls on Republican Senators to move forward and vote on a healthcare bill to replace the Affordable Care Act, as people negatively affected by the law stand behind him, in the Blue Room of the White House in Washington, U.S., July 24, 2017. REUTERS/Joshua Roberts

By Yasmeen Abutaleb

WASHINGTON (Reuters) – President Donald Trump was expected to sign an executive order on Thursday that would make it easier for Americans to buy bare-bones health insurance plans and circumvent rules put in place by Obamacare, though such an order could face legal challenges.

Stymied in Congress by the failure of Senate Republicans to roll back former President Barack Obama’s 2010 healthcare law, Trump’s executive order would represent his administration’s latest effort to undermine the law without legislation.

The order would allow small businesses and individuals to band together as associations to buy cheaper health plans that would be exempt from some Obamacare requirements. Among the requirements would be the mandate that all health plans cover 10 essential health benefits, including maternity and newborn care, prescription drugs, and mental health and addiction treatment.

The order would also change an Obama-era limit on the time span people can use short-term health insurance plans, which are cheaper but cover few medical benefits. Trump was expected to order an extension for the period that long short-term insurance can be used to about a year, versus three months under Obamacare.

Republicans, despite having control of the White House and both chambers of Congress, have for months been unable to make good on their seven-year promise to repeal Obamacare, which they view as a government intrusion into Americans’ healthcare.

Experts questioned whether Trump has the legal authority to expand association health plans and whether some plans, but not others, could be exempt from Obamacare rules.

The action could open Trump to legal challenges from Democratic state attorneys general, who have said they will sue Trump if he tries to destroy Obamacare, a law that brought health insurance coverage to millions of Americans.

Experts said the association health plans could attract young, healthy people and leave a sicker, more expensive patient pool in the individual insurance markets created under the healthcare law, driving up premiums and effectively eroding the law’s protection for those with pre-existing conditions.

Conservative groups and lawmakers, including Republican Senator Rand Paul, who said he has worked with Trump for months on the expected order, and Republican Senator Ron Johnson, have cheered the expected order. Paul opposed the Senate’s most recent attempt to overhaul Obamacare because he said it left too many of Obamcare’s regulations and spending programs in place.

Trump has taken a number of steps since assuming power in January to weaken or undermine Obamacare. He has not committed to making billions of dollars of payments to insurers guaranteed under Obamacare, prompting many to exit the individual market or hike premiums for 2018.

The administration also halved the open enrollment period, which begins Nov. 1, and slashed the Obamacare advertising and outreach budget.

(Reporting by Yasmeen Abutaleb; Editing by Kevin Drawbaugh and Leslie Adler)

Hiscox estimates $150 million net claims from Harvey

FILE PHOTO: Jesus Rodriguez rescues Gloria Garcia after rain from Hurricane Harvey flooded Pearland, in the outskirts of Houston, Texas, U.S. August 27, 2017. REUTERS/Adrees Latif/File Photo

By Noor Zainab Hussain

(Reuters) – Lloyd’s of London underwriter Hiscox Ltd <HSX.L> estimated it would face net claims of about $150 million from Hurricane Harvey and said it has yet to determine losses from Hurricane Irma.

Insurers and reinsurers are counting the cost of Harvey, which lashed Texas in the last week of August causing flooding that put it on the scale of Hurricane Sandy in 2012.

Hiscox said it had two main areas of exposure to the hurricane – reinsurance and insurance lines, including flood cover for homeowners and businesses.

“This (claims) is within the group’s modelled range of claims for an event of this nature, and reinsurance protections for the group remain substantially intact,” Hiscox said in a statement. It said its claims’ estimate was based on an industry forecast that Harvey would lead to a total insured market loss of $25 billion.

Hiscox shares fell 3.1 percent to 1212 pence by 0913 GMT, the second biggest loser on the Stoxx Europe 600 Price Index <.STOXX>, as analysts expected the company would face bigger losses from Hurricane Irma than Harvey.

Germany’s Munich Re <MUVGn.DE> last week warned it could miss its profit target this year, the first major reinsurer to flag a hit to earnings from damage caused by hurricanes Harvey and Irma.

Shore Capital analyst Eamonn Flanagan noted that the loss from Harvey equated to about 6 percent of Hiscox’s net tangible asset value as at the June end.

Hiscox said it would announce an estimate of net claims arising from Hurricane Irma, once the impact of that storm has become clearer.

Chief Executive Bronek Masojada said the storms meant insurance rates were on an uptrend.

“After a long period of price reductions, insurance rates in the affected areas and in specific sectors such as large property are likely to increase. In the wider global insurance market for large risks, we expect rates to stabilise and begin to increase,” Masojada said.

Irma, one of the most powerful Atlantic Ocean storms on record, ravaged several islands in the northern Caribbean, killing at least 60 people, before barrelling into Florida’s Gulf Coast, causing further destruction.

“With Irma expected to be a larger event, our initial view is this is slightly more negative than we had anticipated. We expect Hiscox to trade down today and expect uncertainty to persist around Beazley <BEZG.L> and Lancashire <LRE.L> who are yet to publish their own estimates,” Keefe, Bruyette & Woods analyst Rufus Hone, said, referring to other Lloyd’s of London insurers.

Hone added that while the this year would likely be a net loss overall for Hiscox, it would not have “much of an impact” on the insurer’s expansion plans or put the dividend under threat.

Risk modelling firms RMS estimates insured losses from Harvey of $25-$35 billion, while AIR Worldwide forecast total insured losses in the United States for Irma of $25-35 billion.

(Reporting by Noor Zainab Hussain in Bengaluru Editing by Anjuli Davies and Susan Fenton)

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