California’s wildfires are causing unprecedented damage, with estimated losses between $250 billion (€245.10bn) and $275 billion (€269.58bn), making them potentially the costliest disaster in U.S. history.
The financial repercussions extend beyond U.S. borders, with major European reinsurers expected to face substantial claims. Analysts at Berenberg estimate losses of approximately €1 billion across key firms, including:
- Swiss Re: €160 million
- Munich Re: €220 million
- Hannover Re: €180 million
- SCOR SE: €50 million
The share prices of these companies have already dropped in response to the fires, with Swiss Re, Munich Re, Hannover Re, and SCOR SE experiencing declines of 1.37%, 2.04%, 3.06%, and 1.98% respectively. Despite the losses, experts believe they are manageable within reinsurers’ loss budgets, barring any unforeseen escalations.
The wildfires exacerbate California’s ongoing insurance crisis, which began with the 2018 Camp Fire. Insurers have increasingly limited their coverage or exited the state, citing rising risks, inflation, and the inability to increase premiums proportionally. Leading firms such as State Farm and Allstate have stopped issuing new property insurance policies in California.
The result has been a rise in uninsured homeowners, with over 806,000 Californians now without coverage. This trend is particularly concerning in high-risk wildfire areas, where worsening climate conditions and increased population density amplify the potential for disaster.
Reinsurers are better equipped to handle wildfire-related risks compared to 2018, with higher reinsurance attachment points providing a stronger safety net. Additionally, residential properties, which are less exposed than industrial or commercial properties, are the primary assets affected in this disaster.
The FAIR Plan, a pooling system for high-risk insurance, distributes losses among multiple insurers, lessening the financial burden on any single company. Despite this, the fires underscore the growing unpredictability of climate-related events and the need for robust mitigation strategies.
Amy Bach, executive director of consumer group United Policyholders, expressed concern about the timing of this catastrophe, as insurers were beginning to regain confidence in the California market. The fires threaten to prolong the insurance crisis, making affordable policies harder to obtain.
However, the situation also highlights the need for systemic reforms in risk assessment and climate adaptation strategies. As insurers and reinsurers navigate the challenges, the focus will likely shift to innovative solutions for balancing risk, profitability, and climate resilience.
