The Maui wildfires, from an insurance perspective
There’s no one in the world that hasn’t heard about the horrific Maui Wildfires.
The unprecedented wildfire that devastated the island of Maui last week, killing more than 100 people, has received high volumes of attention from major media outlets, which have gone to remarkable lengths to gather reporting from the scene, most of them reporting about the experience on site and how climate change has played its role. Once again, July and August have beaten warm temperature records, and along with these, come the consequences.
There’s more than enough coverage about the devastating facts, but what does this mean from an Insurance perspective?
The Maui wildfires have come at a time of uncertainty for the insurance industry, in a place that had not previously been considered ‘risky’ by underwriters. Hawaii’s residents generally paid low home insurance rates (the cheapest in the US, in fact) due to the low number of natural disasters in the state versus other states such as Florida and California.
Citi analyst Joshua Shanker said fast-moving fires that swept across Maui this month are projected to result in approximately $1.3 billion in homeowners’ losses. The only other event to surpass this total in Hawaii’s recent history is Hurricane Iniki in 1992, which resulted in insured losses of about $3 billion. After this event, the Legislature created a fund to provide hurricane insurance to homeowners, which was closed in 2002 as the private market returned to full strength.
Looking at the broader picture within the United States, some insurers have begun retreating and ceasing to offer coverage as natural disasters amount, leaving the market — and homeowners — in a difficult position.
Last May State Farm, the largest home insurer in California announced it would no longer sell coverage there. In Florida, home owners struggle to find storm coverage. Hawaii isn’t a stranger to this either. In July, two insurers ( Universal Properly and Casual Insurance), announced their withdrawal from the homeowners, condominium and renter’s insurance market, which is estimated to impact 1,500 policies as of September 2024. This crisis has already caused insurance premiums to skyrocket, and homeowners to struggle finding solutions.
Back to the Maui Wildfires, and current consequences, it’s worth noting that insurers operating in the area may have to resort to reinsurers to help offset losses. This only adds to the complexities of the current industry situation as reinsurers costs have also increased as well as risks and, as a consequence, prices have soared.
This is an awful, but obvious example on how traditional insurance is obsolete. It’s time to find new solutions.
