In a harrowing development for homeowners, natural disasters are growing costlier, stronger, and generally more terrifying.
All five of the most devastating wildfires on record have occurred since October 2017, according to the Insurance Information Institute. The worst was the Camp Fire in November 2018, which killed 85 people in northern California, incinerated 14,000 homes, and caused insured losses estimated at $10.5 billion.
The dreary trend is similar in Hurricane Alley, where three of the four costliest storms ever took place during the calamitous storm season of 2017. Hurricanes Maria, Irma, and Harvey combined to cost insurers an estimated $65 billion to $77 billion.
Two years later, Hurricane Dorian rocked the Bahamas with winds of up to 220 mph -- and narrowly missed Florida. If the monster storm had struck the mansions of Palm Beach or the gated communities Fort Lauderdale or Orlando, there’s little doubt Dorian would have cost tens of billions of dollars.
Why the rising toll from wildfires and storms? Disaster experts point to a combination of changing weather patterns -- drier conditions in fire country, warmer waters in the tropics -- and more people living in harm’s way.
“Some of what we are seeing is climatological,” says Char Miller, director of environmental analysis at Pomona College in California. “But the other part of it is the explosion of subdivisions out into what we know to be fire zones. Those are the places people are moving.”
California’s prohibitively expensive housing market -- the state’s typical home traded for more than $605,000 in October -- has boosted demand for properties in new suburbs and exurbs. Increasingly, those developments are in fire-prone canyons.
“More and more people have been moving to these areas,” says Robert Hartwig, the former head of the Insurance Information Institute who now co-directs the University of South Carolina’s Risk and Uncertainty Management Center. “The reality of it is that those parts of California that are burning today have always burned.”
The Camp Fire led to an exodus from the town of Paradise, the disaster’s epicenter. The 2010 Census counted nearly 27,000 residents in Paradise. A door-to-door survey earlier this year found barely 2,000 people still in town, according to Gov. Gavin Newsom.
In general, though, more people are living in California’s fire country.
Hartwig points to a similar situation in Florida. When Hurricane Andrew devastated the area south of Miami in 1992, fewer than 14 million people lived in the Sunshine State. As Dorian threatened this year, Florida’s population had ballooned past 21 million, a 50 percent increase in a generation.
Insurance premiums increasing
Millions more residents mean millions more homes, and billions more dollars of property value at risk of loss.
Ever since Andrew, the cost of Florida homeowners insurance has been soaring. Citizens Property Insurance, the state-run pool that sells windstorm insurance to coastal homeowners in Florida, says its average premium for hurricane coverage was $2,861 in 2019. That’s just for wind coverage -- it doesn’t include flood risk, of course, or fire, theft and other perils covered by basic homeowners policies.
California homeowners hadn’t been hit as hard by rising rates, but that’s beginning to change in the wake of costly fires. The five fires in 2017 and 2018 caused insured losses estimated at $23 billion to $34 billion.
“Until very recently, the insurance companies didn’t even bother to think about it,” Miller says. “You have areas that burned two, three, four times, and people simply rebuilt.”
Now, Hartwig says, California carriers are raising premiums, too.
“Both coasts are seeing higher homeowners insurance costs,” Hartwig says. “This trend is likely to continue for the foreseeable future, simply because there is no end in sight for the increase in insured losses.”
In Florida, insurers, lawmakers and building officials have tried to mitigate the losses. When Andrew hit, it was the costliest hurricane on record. It caused $15.5 billion in damages in 1992, a total that ballooned to $25 billion in 2018 dollars.
Andrew led to an exodus of private insurers from Florida. Those that remained raised rates and reined in coverage.
The storm also brought drastic changes to the way homes were built in South Florida. A new statewide building code required storm shutters and mandated roofs designed to better weather winds. Impact-resistant windows became common in Florida homes.
While the hardened homes have performed well in subsequent storms, hurricanes are growing more intense. In 2017, Hurricane Irma, the third-costliest storm on record with a $27 billion bill, achieved 180 mph wind speeds. That same season, Hurricane Maria, the second-most expensive U.S. hurricane with some $30 billion in damages, touched 175 mph.
Meanwhile, Mother Nature threw a curveball by sending a major storm to Florida’s Panhandle. Hurricane Michael hit in 2018 with winds of 160 mph. It caused $25 billion in damages -- and forced risk managers to rethink the notion that the Panhandle wouldn’t be hit by major storms.
Jack Nicholson, director of the Florida Catastrophic Storm Risk Management Center at Florida State University, says Michael illustrated the need to expand South Florida’s strict building codes to the rest of the state.
“There’s not a place in Florida that’s exempt from Category 5 winds,” Nicholson says. “We might have gotten a little too cutesy in thinking about all this stuff. We tried to separate North Florida from South Florida.”
California has similarly hardened its building codes to make homes more fire-resistant. Improvements include double-paned or multi-paned windows with tempered glass, metal screens over vents, and fire-rated roofs. In the Camp Fire, fully 51 percent of houses built to the latest code survived the inferno, while just 18 percent of homes not built to the tougher standards were still standing, the Insurance Information Institute says.
For homeowners struggling to recover after disasters, the billions of insurance payouts don’t always cover all their costs. Nearly every hurricane reveals some homeowners didn’t carry flood insurance – and, therefore, their losses aren’t reimbursable. Private carriers don’t cover damage from rising water, a hazard that’s insured only by the National Flood Insurance Program.
In another common misstep, homeowners fail to inform their insurers about valuables such as jewelry, art, and collectibles before disaster strikes, Hartwig says. A homeowners policy covers the value of the home itself, but policyholders must declare valuable contents.
As the costs mount, Hartwig hopes officials in California’s fire country and in Florida’s hurricane-prone areas learn from the spate of expensive disasters.
“Rebuilding in the same spot without making any improvements invites a disaster once again,” Hartwig says. “But if we rebuild smarter and stronger, that is a benefit.”
|Rank||Dates||Event||Insured losses (2018 dollars, millions)|
|1||Nov. 8-25, 2018||Camp Fire, CA||$8,500-$10,500|
|2||Oct. 8-20, 2017||Tubbs Fire, CA||$7,700-$9,900|
|3||Nov. 8-22, 2018||Woolsey Fire, CA||$3,000-$5,000|
|4||Oct. 8-20, 2017||Atlas Fire, CA||$2,600-$4,600|
|5||Dec 4-23, 2017||Thomas Fire, CA||$1,530-$3,600|
|Source: Insurance Information Institute|
|Decade||Average annual insured losses (2018 dollars)|
|Source: Robert Hartwig, University of South Carolina|
|Rank||Dates||Hurricane||Insured losses (2018 dollars, millions)|
|1||Aug. 25-30, 2005||Hurricane Katrina||$51,882|
|2||Sep. 19-22, 2017||Hurricane Maria (3)||$25,600-$30,700|
|3||Sep. 6-12, 2017||Hurricane Irma (3)||$22,500-$27,600|
|4||Aug. 25-Sep. 1, 2017||Hurricane Harvey (3)||$18,400-$20,400|
|5||Oct. 28-31, 2012||Hurricane Sandy||$20,688|
|Source: Insurance Information Institute|