AM Best

Best’s Special Report: Weather Conditions Portend Another Destructive Year of Wildfire Losses

 John Andre
Managing Director
+1 908 439 2200, ext. 5619

David Blades
Associate Director
Industry Research and Analytics
+1 908 439 2200, ext. 5422

Kate Smith
Associate Director, Public Relations
+1 908 439 2200, ext. 5817

Jim Peavy
Director, Communications
+1 908 439 2200, ext. 5644


OLDWICK - JULY 09, 2021 06:00 PM (EDT)
California wildfires caused more than $4 billion in commercial property losses for insurers in three of the past four years, with the expectation that 2021 fire losses could be even greater, according to a new AM Best report.

A new Best’s Special Report, “Weather Conditions Portend Another Destructive Year of Wildfire Losses,” examines the worsening severity and frequency of wildfire events in California. AM Best data shows that direct incurred loss and related legal costs from commercial fire claims surpassed $1.1 billion in 2017, 2018 and 2020. In those same years, combined losses for fire, allied lines, and commercial multi-peril (property) coverage exceeded $4 billion, compared with a high of $2.3 billion for any other year.

Eight of the 10 costliest U.S. wildfires occurred in California between 2017 and 2020. With record-breaking heat engulfing the western part of the United States in June and 98% of the land in western states experiencing drought conditions, this year’s wildfire season is about a month ahead of schedule.

“Based on current conditions, 2021 insured fire loss totals may exceed the losses of recent years,” John Andre, managing director, North American Property Casualty, said.

Over the past few years, the insurance industry has encouraged and enforced more mitigation efforts by insureds, such as using metal or fire-resistant fencing, shoring up roofs and gutters, and cutting back vegetation and trees from the perimeter of the home. Wildfire modelling has become more refined in recent years, enabling companies to make more informed underwriting decisions and reinsurance purchases.

In early 2021, California Insurance Commissioner Ricardo Lara proposed new rules requiring insurers to provide consumers with their properties’ wildfire risk scores. Insurers must indicate any mitigation actions consumers could take to improve their rating (such as creating defensible space and fire-hardening) and give consumers time to lower their scores. The new regulations will incentivize mitigation and help consumers make better informed decisions when they buy, sell, or build a home. These changes will also provide insurance companies with more upfront certainty about the materials and information required in rate applications filed with the California Department of Insurance, eliminating delays caused by incomplete initial rate filings.

Currently, there are more than 30 California regulatory/legislative bills/proposals related to wildfire that can be grouped into four main categories: mitigation incentives, penalties, funding, and cancellations.

“These proposals underscore the growing importance that lawmakers and creators of public policies are placing on wildfire risk and the damage it causes as events occur more frequently and become more severe in nature,” said David Blades, associate director, industry research and analytics.

To access the full copy of this special report, please visit .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.