Brought to you by:

Maui wildfire claims to hit smaller insurers 

The devastating Maui wildfires are expected to hit smaller insurance carriers with business concentrated in Hawaii. 

AM Best says larger carriers, with geographic spread across the US, are more likely to have the capital and reinsurance to absorb the losses. 

It says insurers will face cost and supply chain delays, inflation and a surge in demand for more fire-resistant materials that may not be easily sourced. 

“Furthermore, the demand surge for such materials will increase the cost precipitously of rebuilding as well as retrofitting existing structures,” AM Best said in a report. 

Earlier this month, wildfires tore through the island of Maui. While the area destroyed was small, the death toll is around 115 and expected to grow with hundreds of people unaccounted for. 

AM Best says the smaller carriers underwrite more of their policies in Hawaii. The impacted lines account for more than 10% of direct premium written for just three companies. 

The largest concentration is 31% followed by 21.4% and 10.7%. 

AM Best says it is monitoring events in Hawaii and communicating with the rated insurers. 

“Generally, there is less debate on coverage when losses occur due to fire,” AM Best said. 

“With wind-based storms, there is an element of whether damage was caused by wind or by flood, which could shift responsibility to government backstops.” 

Carriers with Maui claims are expected to face supply shortages and pricing volatility as they try to house affected people in hotels and using rental platforms. 

“Investigations into the origin of the fires continue. When the investigations are completed, there may be subrogation opportunities for carriers.” 

AM Best says similarities are being drawn to the situation with the Pacific Gas and Electric Company regarding the 2018 California wildfires. 

It says investigators will examine if power lines were the cause and if more effective risk mitigation measures should have been taken prior to the wildfire breakout. 

Catastrophe risk modeller Moody’s RMS estimates economic losses from the Hawaii fires at $US4 billion to $US6 billion ($6.25 billion – $9.37 billion). 

“Most of the economic damage is expected to be covered by insurance, in the range of approximately 75% or more, because wildfire is a covered peril under typical insurance policies and the island has high insurance penetration rates,” it said.