Maui’s Lahaina fire to cost insurers $3.2 BILLION, experts warn – pushing up premiums for homeowners everywhere

Insured property losses from the wildfires that devastated Hawaii’s Maui are more than $3 billion, according to new estimates.

Experts are now warning that the disaster will drive up homeowners’ premiums everywhere as more and more states fall victim to extreme weather events.

This week, thousands of homes were destroyed in the inferno that tore apart the resort town of Lahaina, Maui. The death toll from the blaze currently stands at 106, with more than 1,000 residents still missing.

Prior to the fire, Hawaii had experienced relatively few natural disasters, meaning homeowners benefited from the lowest home insurance rates. Consumer service company data Bank rate shows that the average homeowner pays just $382 per year in the Aloha state.

But this could soon change, experts warned, after catastrophe modeling firm Karen Clark and Company (KCC) estimated losses had reached $3.2 billion.

A man walks through the smoldering ruins of Lahaina on Wednesday

An aerial view of Lahaina after wildfires burned through the city on the Hawaiian island of Maui on August 10, 2023. Catastrophe modeling firm Karen Clark and Company (KCC) estimated insured property losses to be $3.2 billion

KCC analyzed satellite and aerial imagery and found that more than 2,200 structures fell within the perimeter of the Lahaina fire. Another 3,000 structures were hit by smoke or secondary effects.

The company wrote in its report, “In Hawaii, the dry season is getting hotter and drier due to climate change, making the state more vulnerable to wildfires and wildfires.”

It has raised concerns that the disaster could exacerbate the US insurance crisis, which has already sent premiums down and companies refusing to cover homes in states most at risk of extreme weather.

Meyer Shields, an analyst at Keefe, Bruyette & Woods told investment site from Baron: ‘The companies that take out this insurance can largely absorb that loss and continue.

“I’m sure they’ll raise rates in the aftermath, because in the years to come we’ll be dealing with a very fresh memory of this loss, which unfortunately, like so many other losses, is quite unexpected.”

He added, “It will reinforce the already existing dynamic of rising homeowners because the potential losses companies will expect to see in, say, 2024-2025 will now be higher.”

The US insurance market was already in a fragile state as companies attempted to cope with an increase in extreme weather events due to climate change.

It has prompted insurers to increasingly deny coverage to owners in the riskiest states, such as California and Florida.

In June, America’s largest real estate insurer, State Farm, announced that it would almost completely stop issuing new policies in California due to wildfires in the Golden State.

Meanwhile, dozens of insurers also announced plans to leave Florida due to increasing vulnerability to extreme weather.

The search for the wreckage on Maui on Thursday revealed a wasteland of burnt-out homes and destroyed communities as firefighters battled the stubborn blaze, making it the deadliest in the U.S.

And the increase in payouts has forced companies to increase premium costs. The average cost of a homeowner’s insurance policy in the U.S. has risen to $1,700 a year — according to Barron’s — an increase of about 10 percent from last year.

Adam Klauber, an analyst with William Blair, predicted that the fires in Hawaii would likely cause insurers to increasingly withdraw from specific areas.

“We will continue to see more geo-restrictions and non-renewales,” he told Barron’s.

Klauber added that consumers may be forced to turn to less regulated providers with higher costs for coverage.

Government regulation and intervention in insurance markets varies between states.

Historically, Hawaii has had a strong private insurance market that did not require strong intervention.

The biggest disaster to hit the state was Hurricane Iniki in 1992. After that, the legislature established a fund to insure hurricane owners.

However, the fund stalled in 2002 after the private market recovered.