— This LA Times story about AIG’s private fire crews that are brought in to protect enclaves of million-dollar-plus homes has an undertone of resentment. I saw a number of blog posts about this story, all ranging along the scale from upset to outraged. I posted about AIG’s firefighters before these wildfires began, and as I indicated in that post, I’m curious what kind of lawsuits will eventually arise out of this practice. When it comes to insurance, eventually all angles of recovery will be tried. Even if it does result in scattered litigation, however, it’s worth it to AIG to avoid as many massive first-party claims as possible. Why do I think this will result in litigation at some point? As the outraged blog posts I saw indicated, this practice is particularly prone to be used in a lawsuit to attack AIG’s brand image — a tactic policyholder attorneys increasingly favor.
— This MSNBC story says that wildfire damage easily will exceed $1 billion. Most of it will be insured, but the question is whether property owners learned from the 2003 wildfires in the same area and made sure their coverage is equal to the value of their homes. As the story says:
Homeowners who suffered losses may be in better shape than those who filed claims after the 2003 fires, which touched off widespread complaints after many discovered that they were underinsured. Though many have now beefed up their policies, they still face losses from deductibles and losses that may not be covered.
However, I have to point out that the paragraph that follows this in the story makes no sense at all:
Insurance rates for home owners in fire-prone areas may well be raised if the insurance industry can convince state regulators they face higher risk from future fires. Those who lost their homes to fire will also be hurt by the depressed housing market, since claims are based on current market values, which have been substantially depressed by the downturn.
Sometimes news stories descend into random bits of kvetching held together only by the glue of schadenfreude. Y’all know what I’m talking about here, don’t you, this tendency in disaster stories? If someone is fully insured, is made whole and gets back a house of the same value in all respects to the one that was destroyed, it is not an insurance problem that the local housing market was in a downturn. If no fire had occurred, the homeowner would be in the same market position as if one had.
— This story in the Washington Post — not sure you’ll get through if you click the link, the Post is one of those dinosaurs that requires subscriptions to access much of its database — says insurers don’t expect local or national premiums to go up as a result of the wildfires. An excerpt:
As the wildfires that ravaged Southern California for five days lost momentum yesterday, representatives of the insurance industry said the estimated $1 billion in fire damage would have little if any impact on homeowners’ rates in California or the rest of the nation.
"It’s well within the range of losses we expect to see in California every few years," said economist Robert Hartwig, president of the Insurance Information Institute. "That means the rate in this area is already reflected with the risk associated with wildfires."