Fired introduce more financial strain to the insurance industry
Two wildfires in Northern California have destroyed almost 150,000 acres of land, causing approximately $1 billion in insured losses, according to the California Department of Insurance. The fires hit the state last fall and the insurance industry has been working to measure the damage caused by the disasters since then. One of the fires, called the Valley Fire, has become the third most devastating wildfire in the state’s history in terms of total structures destroyed.
Wildfires could be more destructive due to damage caused to infrastructure
The Valley Fire has destroyed some 2,000 structures in three counties, totaling $700 million in insured losses. Another fire, called the Butte Fire, is considered the seventh most destructive wildfire in California history, destroying some 800 structures. This fire accounted for approximately $300 million in insured losses. These fires may actually be more costly for the state, as the $1 billion in insured losses does not include any damage that the fires may have caused to community infrastructures and utilities.
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Disasters may cause the insurance industry to raise premiums on coverage
The fires have hit the insurance industry relatively hard. Insurers are likely to be able to manage the financial losses they have experienced, but this could have an impact on homeowners and businesses at some point in the future. Natural disasters typically lead to losses for the insurance industry, which insurers attempt to offset by raising insurance premiums. Premium increases are not always immediate, however, with some rate hikes coming several months or even years after a disaster has struck.
Ongoing drought leaves homeowners exposed to fire disasters
One of the greatest challenges that the insurance industry, consumers, and businesses face in California currently is the ongoing drought that has plagued the state. California’s fire season had, in the past, only lasted four months. Now, dry conditions make it possible and likely for wildfires to form at any point in the year. Homeowners without the appropriate insurance protection are being encouraged to acquire fire insurance, as well as any other supplemental coverage that they may need.