Putting 2020 in the rearview mirror — Part 2

It’s been a long year for everyone, and insurers have been focusing on implementing new technology, serving their policyholders virtually and handling a wide variety of claims under the limitations dictated in part by the pandemic.

Part 1 of this series looked at the challenges COVID-19 brought to the claims industry and the second installment of this two-part series examines the impacts of the massive wildfires, an overly active hurricane season, and the riots that took place across parts of the country.

Wildfires burn the West Coast

California saw its largest wildfire season ever, with more than 4 million acres burned, surpassing the 2018 record when 1.8 million acres burned. Homes, businesses, vineyards, wineries and cannabis farms were impacted by the fires. To date, the California Department of Forestry and Fire Protection has tracked 9,639 fires, with over 10,000 structures burned or destroyed.

In late September, CoreLogic released its annual Wildfire Report. The report showed that 1.9 million homes are at an elevated risk of wildfire damage in the U.S. Three areas in California — Los Angeles, Riverside and San Diego — are among the regions with the largest number of single-family homes at risk for wildfire damage. California also houses 76% of the residences that appear on the top 10 lists for single and multi-family homes.

Fifteen states were identified as having the highest wildfire risk: Alaska, Arizona, California, Colorado, Florida, Idaho, Montana, New Mexico, Nevada, Oklahoma, Oregon, Texas, Utah, Washington, and Wyoming. According to statistics, CoreLogic found that the Western U.S. has a disproportionate amount of wildfire activity. Alaska, with its abundance of forests, also sees an excessive number of wildfires.

As of late September, catastrophe modeler Risk Management Services Inc. (RMS) had estimated insured losses for the wildfires to be between $3 billion to $5 billion in Northern California and $1 billion to $3 billion for the fires in Oregon and Washington. Twenty percent of the losses in Northern California and 35% of the losses in Oregon and Washington were due to costs associated with smoke damage and evacuating residents.

The Glass Fire in late September destroyed vineyards in Napa and Sonoma, effectively canceling most of the 2020 fall harvest. More than 1,500 buildings were destroyed and an additional 282 structures were damaged, according to CAL FIRE. Even vineyards not decimated by the fires suffered smoke damage to their grapes and heat exposure and power shutdowns at their bottling facilities. Over 67,000 acres were lost, and total claims are still being tabulated. At the same time, the Zogg Fire burned in Shasta and Tehama Counties, burning over 56,000 acres and destroying 204 structures.

An over-active hurricane season

As if the coronavirus pandemic hadn’t created enough chaos for the industry, there was an extremely active hurricane season to contend with as well. The 21 names selected for this year’s hurricanes were used before the end of September, and in October, forecasters were into the first eight letters of the Greek alphabet. By early October, 10 storms had made landfall in the U.S., and by the end of the hurricane season, there were 30 named storms in the Atlantic.

The Gulf Coast of the U.S. was among the hardest-hit areas. Hurricane Delta, the tenth named storm to hit the U.S. this season, landed along the western Louisiana coast as a Category 2 storm on Oct. 9, bringing high winds, storm surge and flooding to areas that had already survived Hurricane Laura, a Category 4 storm that had arrived in late August. According to RMS, a catastrophe risk modeling and solutions firm, insured losses from Hurricane Laura are estimated to range between $9-13 billion. CoreLogic puts damage estimates from Delta at between $700 million and $1.2 million for wind and storm surge losses.

Since Delta followed a similar trajectory to Laura’s, some existing losses could be exacerbated. As of Oct. 14, catastrophe modeler AIR Worldwide had estimated insured losses from storm surge and wind damage due to Delta to range from $1 billion to $3 billion. Karen Clark & Company projects onshore property losses from wind and storm surge at $1.25 billion in the U.S. and $300 million in Mexico from wind losses.

Hurricane Sally blew into Gulf Shores, Alabama, on September 16 as a Category 2 hurricane and caused an estimated $1-$3 billion in insured losses, according to AIR Worldwide, however, modelers at Enki Research predict costs could reach as high as $8-10 billion. Flooding affected the harvesting of cotton and peanut crops, and the slow-moving storm dropped anywhere from 6-10 inches of rain across parts of Georgia. The Alabama Port Authority estimated that Sally caused $12 million in damage to its facilities, as well as channel and navigational buoys.

A report from AccuWeather places economic damage estimates for the over-active hurricane season at between $60-65 billion.

Riot damage hits a new high

In addition to the coronavirus, hurricanes and wildfires, protesters across the country damaged countless businesses as they exercised their freedom to assemble and protest injustice following several police-involved shootings. Unfortunately, some of those peaceful protests turned into looting, arson and vandalizing a wide range of stores, restaurants and other businesses. One Chicago protestor said it was okay to loot and damage these businesses because they had insurance, and the insurers would cover the losses. Owners of a store on Chicago’s Magnificent Mile were looted three times during the protests that spanned several weeks.

The price tag for these protests is expected to be a record $1-$2 billion in insurance claims according to the Insurance Information Institute. The riots involved approximately a half million people in nearly 550 locations (including 140 cities in more than 20 states). The last riots with significant property damage occurred in 1992, following the acquittal of several Los Angeles police officers in the beating of Rodney King. Violence from those protests led to $775 million in insured losses (or $1.4 billion in 2020).

The good news for home and business owners who suffered losses is that property damage caused by riots, protests and vandalism is usually covered by insurance. Policies that provide coverage include standard auto, homeowners and business insurance, and insurers say that each claim will be reviewed and decided on its own merits.

Given all of the claims activity, carriers will be looking at the wording for their policies and their underwriting practices. Philipp Cremer, global head of claims for Allianz Global Corporate & Specialty, says it’s not unusual for an insurer to review its policy wording. “It happens all of the time.” Claims executives meet with their underwriting teams to provide feedback on how the policies operate and whether or not there are ambiguities that need to be addressed in the policies. With so many coronavirus claims going to court, insurers will be watching to see whom those rulings favor, how exclusions are applied and what new risks have emerged.

The good news is that 2020 is almost over and no doubt, many of us are happy to leave it in our rearview mirror and cruise into a new year.

Patricia L. Harman (pharman@alm.com) is the editor-in-chief of Claims Magazine.

Related:

• Wildfire risk leaves Californians without homeowners insurance
• The 2020 hurricane season: Is it really over?
• Riot and civil commotion exposures: Stories from recent unrest