Uncertainty Surrounds Insurance Pricing After Wildfires

As wildfires continue to ravage the LA area a week after starting, the impact on insurance premiums and costs to rebuild are still very uncertain.

Despina Buganski, head of North America personal lines for global insurance brokerage and consulting firm WTW, sat down with Reporter Sarah Wolak to talk about how the company is assessing responses from past wildfires as it anticipates the damages from the Palisades and Eaton fires.

Editor’s note: This Q&A has been edited for length and clarity.

Sarah Wolak: What do you expect the damage estimates to be in LA currently, amid all these fires happening?

Despina Buganski: I think it’s way too early even for me to give you my even my own personal best guess. I think it’s still a very fluid situation and the idea that it’s still active as well…Obviously, we’re reviewing and keeping on top of [the news] but it’s just a little too soon to really be able to predict.

SW: Insurance costs are expected to rise in the aftermath of these fires. What are you predicting in terms of insurance pricing in the area?

DB: How these current wildfires are going to impact future pricing is still a bit of an unknown, since it has been just one week. But, historically, what we have seen over the last couple of years from the last significant wildfire, is that pricing has gone up a bit. In the state of California, we’ve seen a little bit of a tightening of underwriting and capacity in the state. And then on top of that, you’ve seen some limited markets being willing to offer a term. So from that standpoint, I would imagine that we’ll continue to see the same trajectory.

SW: Historically, after disasters like this, is the increased insurance cost spread out across different regions, or is it usually concentrated in those specific areas?

DB: The insurance industry in general is built on the spread of risk. So I mean, if you’re thinking after any type of a catastrophe, could there be pricing impact outside of the area that’s impacted? We’ve seen that after hurricanes and major events that can impact all states, potentially. But I think that based on the location of where this is, I think that some of the actions we’ve seen insurance companies take, I’m sure that there’s going to be the probability that this could impact pricing and coverages in this specific market. 

SW: Do you think other areas that are prone to wildfires would also see an increase?

DB: Over the last couple of years, we’ve seen carriers review wildfire and other catastrophic types of losses, there has been a bit of a concentration on reviewing that, and so I would expect that that will continue, and there are pockets of the country that have the same similar types of [Combined Additional Coverage] concerns.

SW: What have people at WTW been observing in terms of the aftermath or results of what’s happening right now in LA?

DB: The main focus for us is to make sure that we’re making ourselves available to our clients, to make sure that we’re there and able to help them. From a claims perspective, I think that it’s important that clients are speaking to their brokers and agents, or if they work with a direct market, they’re communicating with them to have a good understanding of their current insurance program from not only a pricing perspective but also from a coverage perspective.