Southern California Fires

Custom Events | Summary
Posting Date: January 22, 2025, 11:00:00 AM

Verisk estimates that insured industry losses to property for the Palisades and Eaton fires together will fall between USD 28 billion and USD 35 billion.  This estimate includes losses due to fire and is inclusive of losses to the California FAIR Plan.  Of this total, Verisk estimates losses from the Palisades fire will range between USD 20 billion and USD 25 billion, and losses from the Eaton fire will range between USD 8 billion and USD 10 billion.  Most of the losses are to residential risks.

ALERT™ subscribers can now download Touchstone® and Touchstone Re™ event sets containing two scenarios for each of the Palisades and Eaton fires, loss-based similar stochastic events (SSEs), and hazard perimeter shapefiles of the two modeled fires from the Downloads tab for this posting on the ALERT Website. The information provided herein is strictly confidential and is solely for the use of Verisk clients; disclosure to others is prohibited unless noted in your Verisk software license.

Modeling Information and Assumptions

The modeled scenarios in the custom event set for the Palisades and Eaton fires released today only include the fire peril.  Smoke is not included.  There are two scenarios provided for each of the Palisades and Eaton fires, reflecting different assumptions regarding the impact of downslope winds on fire intensity.

Included in the industry insured loss estimate are losses to residential, commercial, and industrial properties and automobiles for their building, contents, and time element coverages.  The industry loss range provided above has been adjusted from the baseline model to account for demand surge, debris removal, and estimated insured take up rates.  More on the adjustments for these factors can be found in the “Modeling Considerations” of this summary below.

The modeled scenarios/event sets released today do not include:

• Losses from smoke damage
• Losses from the Hurst fire or other fires during this past month other than Palisades and Eaton
• Losses exacerbated by litigation, fraudulent assignment of benefits, or social inflation
• Losses from guaranteed replacement cost coverage
• Losses from ordinance or law coverage
• Losses to uninsured properties
• Losses to infrastructure
• Losses from extra-contractual obligations
• Losses from hazardous waste cleanup, vandalism, or civil commotion, whether directly or indirectly caused by the event
• Losses from debris removal, though the industry loss range quoted herein has been adjusted for this
• Loss adjustment expenses

Modeling Considerations

Event Definition

Questions remain as to how the broader insurance industry will treat these fires in terms of a loss occurrence – in other words, are the Palisades and Eaton fires a single event, or two distinct events? Verisk Property Claims Services (PCS) has designated each of the Palisades and Eaton fires as separate catastrophe events.  This opens the possibility for insurers and other market participants to follow suit, with at least one insurer in California noting they are considering this for the purposes of calculating reinsurance recoveries from the fires, and more generally speaking, the way these fires get defined as an event could have a notable impact on the split of losses between private insurers and the reinsurance market.

Exposures at Risk

Following other major recent California wildfire events, additional living expense coverage is extended for all policyholders for residential risks to a minimum of 24 months, and longer in certain cases. While policy limits remain in place as is to limit eventual losses, there is the potential for higher additional living expense payouts under this law.  The underlying industry exposures used to generate the industry loss range quoted herein were updated in recent years to account for this.

The impacted areas from the Palisades fire include some of the highest property values in the country, and many of the policyholders have considerable contents exposure, including jewelry, fine art, and other luxury goods.  Adjustments have been made to the Verisk industry exposure database in these areas in recent years to account for higher contents values in high value homes, though these adjustments may not directly reflect individual exposures with particularly outsized contents exposure. 

Demand Surge

Demand surge analysis was completed using historical construction cost data for the Los Angeles area (Los Angeles County and Santa Barbara County) using Verisk’s 360Value® Quarterly Residential Replacement Cost Index (seasonally-adjusted). Demand surge was estimated using long-term 3- and 4-year cost inflation averages from 1999 to 2024 and adjusted to account for current economic conditions, the expected disruption to the construction market, and prolonged cost inflation over the rebuilding period. The 3-to 4-year rebuilding period was chosen based on reconstruction trends following recent California wildfires in 2017, 2018 and 2020.  The result is an estimated range of demand surge impacts from 13% to 26% on modeled losses.  This range of factors is reflected in the headline industry loss estimate; clients who wish to use these demand surge factors on modeled losses should apply them separately.

Debris Removal
Debris removal coverage is typically set at 5% of insured value, per the California Department of Insurance.  Given the large number of destroyed structures from these two events, and the need for complete rebuilding, it is likely that losses stemming from this coverage will be non-trivial for this event.  The insured industry loss estimate provided in this summary reflects a 5% upward adjustment from directly modeled losses to account for this, and clients are encouraged to make a similar adjustment or otherwise adjust replacement values to account for this in their modeling of this event.

Insured Take Up

In recent months, multiple insurers have dropped policyholder coverage for wildfires or outright dropped customers altogether with significant fire risk, including many in Los Angeles County.  This has led to an increase in exposure covered by the California FAIR plan, the insurer of last resort in the state.  In the Pacific Palisades, for example, about 15% of homeowners are on the FAIR plan – this proportion is four times higher than it was in 2020.  Given these recent changes, there is greater than usual uncertainty in the actual proportion of policyholders who receive coverage from the private insurance market and the downstream impact on the eventual insured industry loss tally from these fires.

Guaranteed Replacement Cost and Ordinance or Law

Modeled losses could also exceed stated insured limits due to guaranteed replacement cost and Ordinance or Law coverages.  Guaranteed replacement cost coverage allows for full rebuilding of a damaged or lost structure, even if rebuilding costs exceed dwelling limits.  Given rapidly increasing property values as well as the potential for increases in labor and material costs in the coming months, these coverages could kick in to further exacerbate insured losses.  Likewise, if older structures requiring rebuilding will have to be brought up to current building codes, Ordinance or Law coverage will kick in and could again drive losses higher.  These factors are not explicitly included in the Verisk loss estimates contained herein and remain a source of uncertainty around the eventual overall insured loss tally from these fires.

This is the final ALERT currently planned for these events.  Please contact your Verisk representative with any questions.

Custom Events | Downloads
Posting Date: January 22, 2025, 11:00:00 AM

The information provided herein is strictly confidential and is solely for the use of Verisk clients; disclosure to others is prohibited.

Simulated Event Sets

These event sets contain two custom modeled scenarios for each of the Palisades and Eaton fires, with different assumptions regarding the intensity of downslope winds. 

Note the Touchstone event set is only valid for Touchstone version 12 and the latest version of the Verisk Wildfire Model for the U.S. - it is not compatible with previous versions of Touchstone.

Product	Description	Download
Touchstone Re v10/12	Selected set of simulated scenarios
Touchstone v12	Selected set of simulated scenarios

Loss Based Similar Stochastic Event IDs

These stochastic events were selected as best matches to the insured industry loss footprints generated by the custom modeled scenarios in the Simulated Event Set.  See Readme for more details.

Product	File Type	Description	Download
Touchstone / Re	Excel (xls)	Selected set of stochastic events, with Readme in Excel format
Touchstone / Re	CSV (csv)	Selected set of stochastic events, formatted for import into Touchstone/Re

Additional Downloads

Please use the appropriate application to view these files.

Title	File Type	Description	Download
Palisades Fire Modeled Perimeter	.zip	A shapefile of the modeled perimeter of the Palisades fire
Eaton Fire Modeled Perimeter	.zip	A shapefile of the modeled perimeter of the Eaton fire