2017 California Wildfires
11/16/2017 1:45:00 PM
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Update 411/16/2017 1:45:00 PM  
Update 311/9/2017 1:00:00 PM 
Update 210/26/2017 2:30:00 PM 
Update 110/16/2017 1:26:00 PM 
First Posting 10/12/2017 1:00:00 PM 
Posting Date: 11/16/2017 1:45:00 PM

After analyzing findings from AIR’s damage survey conducted during the week of October 30, along with newly acquired information about policy terms, and a re-examination of the replacement values within our industry exposure database (IED), AIR Worldwide now estimates that insured losses from the Tubbs, Nuns, Atlas, Redwood, and Sulphur fires in California will be between USD 8 billion and USD 10.5 billion.

AIR’s loss estimates represent damage to residential, mobile home, commercial, and automobile lines of business, as well as direct business interruption losses; they include demand surge but do not contemplate extra expenses such as debris removal or coverage of loss caused by the enforcement of ordinances regulating reconstruction. What follows is a discussion of the considerations that have informed our revised loss estimates.

Damage Ratios

On November 9, AIR posted new damage ratios for the five fire perimeters mentioned above. While damage ratios in the Nuns, Atlas, Redwood, and Sulphur fires are higher than historical averages, they are largely consistent with severe fires in the historical record. However, AIR’s damage survey team determined that damage ratios within the Tubbs Fire were close to 100%, which is unprecedented for wildfires as large as Tubbs. AIR’s revised estimates employ the damage ratios published on ALERT on November 9, except as noted in the following section.


AIR’s initial loss estimates were based on fire perimeters as published by GeoMAC, a geospatial tool available from the USGS. While the GeoMAC perimeters were refined as the fires became contained, their primary purpose is to inform fire-fighting efforts rather than damage or loss estimation. Therefore, uncertainty around the actual perimeters still exists. Moreover, claims data from our sister company Xactware® indicate a fairly large number of claims outside the GeoMAC perimeters (as much as 1 km distant), and this has been verified in conversations with clients. AIR’s updated estimates therefore consider properties within a 1-km buffer around the published perimeters, albeit at significantly reduced damage ratios, as these claims are more likely to reflect smoke and possibly partial fire damage. Not surprisingly, losses from the Tubbs Fire are the most sensitive to the buffer because of the population density in that area. AIR estimates that there are approximately 11,000 residential properties within the 1-km buffer around the GeoMAC perimeter of the Tubbs Fire.

Additional Living Expenses

With further research, we can now confirm that if the state declares a disaster, California homeowners can take up to 24 months to spend their policy limit for additional living expenses (ALE). This increases the likelihood that those limits will be exhausted, resulting in higher losses than would be produced by the assumptions built into the AIR California wildfire model. The updated estimates reflect this new information. It is also worth noting that in conversations with several insurance companies, we have come to understand that ALE may well be unlimited for high-value homes. However, the percentage of high-value homes in AIR’s IED is quite small. Given that, as well as reports that such homes may have been protected by insurers’ own fire-fighting efforts, we have not attempted to adjust loss estimates for these properties apart from factoring in the likely exhaustion of more typical ALE limits. It remains, however, a source of uncertainty and could increase total losses from the fires still further.

Property Replacement Values

We also re-examined AIR’s replacement values for residential properties in Napa and Sonoma counties using Touchstone®’s Data Quality Analytics Module, which estimates replacement values by leveraging a property-specific database that includes detailed building characteristics on more than 80.2 million residential properties nationwide. The database blends information from a variety of sources, including census and tax data, as well as data sources from our parent company Verisk, such as site-surveyed building information from insurance-ready public records data from ISO PushPin™ and replacement-cost estimates from Verisk’s 360Value®. For typical residential risks, the values in AIR’s IED were largely validated by Touchstone, but at the high end of the distribution—for extreme high-value homes—AIR’s values were indeed shown to be underestimated. In updating our loss estimates for the wildfire siege, AIR replacement values were augmented by the property-specific database in Touchstone for all residential and mobile home risks for all fire perimeters.

Another consideration leading to potentially higher Coverage A (building) losses is Guaranteed Replacement Cost (GRC) coverage. Given the number of total losses resulting from these fires and the fact that demand surge (increases in rebuild costs associated with shortages of labor and materials) is likely to play a role in the ultimate insurance losses from these fires, GRC policies could result in higher payouts than normal.

Other Sources of Uncertainty Not Considered

In addition to uncertainty around the losses relating to unlimited ALE payouts to owners of high-value homes, there are other sources of uncertainty that may result in higher losses than otherwise contemplated here. These include insured losses arising from mandatory evacuations—and therefore time element claims—outside the fire perimeters. The range in AIR’s damage ratios also reflects uncertainty in the widespread but lower levels of loss due to loss of electricity and damage from the fire suppression efforts themselves.

As noted in our posting of November 9, uncertainty remains regarding losses to vineyards and wineries. While AIR does not expect losses to wineries and vineyards to constitute the major part of the losses from these fires (residential losses are expected to dominate), it may be that the value of the equipment, machinery, and inventory at the wineries may exceed the contents values contemplated in AIR’s IED.



2017 California Wildfires
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