U.S.
1:53 am
Sun July 7, 2013

Despite Hefty Payouts, Fire Insurance Costs Hold Steady

Originally published on Sun July 7, 2013 1:46 pm

Wildfires have already destroyed hundreds of homes in the American West this year. The insurance industry is once again poised to pay out hundreds of millions of dollars to cover those losses, as it already has for homeowners who lost their houses during last year's fire season.

When the Waldo Canyon fire, the most destructive in Colorado's history at the time, roared into C.J. Moore's neighborhood last summer, she knew her home didn't stand a chance. The fire leveled Moore's home and 345 others around it.

"These houses did not burn, they exploded," she says. "It was like somebody set a bomb off in the interior. I mean, it wasn't a case of the roof caught on fire and then the house burned. Unh-uh. They literally incinerated."

Fast-forward a year, and Moore's neighborhood on the western edge of Colorado Springs is a flurry of reconstruction. Moore and most of her neighbors had good insurance and almost everything is being replaced.

"They're building the deck now, which will be fabulous," Moore says. "My behind neighbors, they're about to stucco their house. So it's gonna turn back into the neighborhood again."

Rebuilding Despite Fire Risk

Insurance companies are paying to rebuild hundreds of homes in an area proven to be at high risk for wildfires. Even so, the premiums to insure those homes are unlikely to change much.

The fact is, for insurance companies, wildfires aren't that big a deal compared to say, tornadoes or hurricanes. And even in fire-prone Colorado, hail is still responsible for more actual insured losses than fire. One hailstorm over the Denver area in July 2009 led to almost $790 million in insurance claims (approximately $820 million in 2012 dollars) — about double what the Waldo Canyon Fire cost.

"We are in hail alley, so still our most expensive catastrophe is hail," says Carole Walker, executive director of the Rocky Mountain Insurance Information Association, an industry trade group. While images of wildfires are dramatic, Walker says they still affect relatively small areas.

Still, the recent catastrophic wildfires are causing insurance companies to get tougher. Companies are starting to ask homeowners in the woods to do more before they get a policy issued or renewed.

"When it comes to wildfire, and they're looking at that risk, we know with wildfire, there is much we can do to be able to make those properties safer," Walker says. "The science shows us that, with the defensible space, the proper building materials, with fuels away from the home, that those can go a long way to saving a home."

Insurers Pay For Homes, Government Pays For Firefighting

But broadly, the risk calculation the insurance companies make is skewed by one major thing: Local, state and federal agencies respond to, fight and stop almost every wildfire — and literally thousands ignite every year. Only a tiny fraction ends up damaging property.

Take June's huge Black Forest Fire, also near Colorado Springs. More than 500 homes were destroyed, but several thousand more were saved.

"Insurance is based on risk, and your risk is reduced when the cost of defending the homes is paid for by somebody else," says Ray Rasker, executive director of the Montana-based think tank Headwaters Economics.

By "somebody else," Rasker means taxpayers. Last year alone, the U.S. Forest Service budgeted roughly $1 billion for wildfires. The bulk of that money went to battle blazes that threatened homes and cities.

"It's not until we start shifting that cost responsibility more to the local level, that we're going to see a change in the pattern of where people build homes," Rasker says.

Until a county or a city has to absorb some of the true costs of building in the woods, Rasker says, nothing is going to change. And the insurance industry will keep writing policies for people who want to live there.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

RACHEL MARTIN, HOST:

The wildfires in Arizona caused the deaths of 19 firefighters last week. That's more deaths than in any U.S. wildfire in 80 years. Property, of course, can be damaged in these fires too. Hundreds of homes have already been destroyed so far this year, which means the insurance industry is bracing to pay out hundreds of millions of dollars. In spite of that, the insurance premiums of people living in the woods are not likely to rise much. NPR's Kirk Siegler explains why.

KIRK SIEGLER, BYLINE: Last summer, when a wildfire roared into CJ Moore's neighborhood, she knew her home didn't stand a chance.

CJ MOORE: These houses did not burn, they exploded. It was like somebody set a bomb off in the interior. I mean, it wasn't a case of, the roof caught on fire, and then the house burned, uh-uh. They were literally incinerated.

SIEGLER: Moore's home and 345 others around it leveled. At the time, the Waldo Canyon Fire was the most destructive in Colorado's history. Fast forward a year and her neighborhood on the western edge of Colorado Springs is a flurry of reconstruction.

(SOUNDBITE OF HAMMERING)

SIEGLER: Moore and most of her neighbors had good insurance, and pretty much everything is being replaced.

MOORE: They're building the deck now, which will be fabulous. My behind neighbors, they're about to stucco their house. So, it's going to turn back into the neighborhood again.

SIEGLER: So, insurance companies are paying to rebuild hundreds of homes in this neighborhood proven to be at high risk for wildfires. Now, the insurance premiums to insure those homes, they're not going to change much. That surprised CJ Moore. But the fact is, for insurance companies, wildfires aren't that big of a deal compared to, say, tornadoes or hurricanes. And even in fire-prone Colorado, hail is still responsible for more actual insured losses. A few years back, one hailstorm over the Denver area led to almost a billion dollars' worth of insurance claims. That's about double what the Waldo Canyon Fire cost.

CAROLE WALKER: We are in hail alley, so still our most expensive catastrophe is hail.

SIEGLER: Carole Walker is executive director of the Rocky Mountain Insurance Information Association. It's an industry trade group. While images of wildfires are dramatic, she says they still affect relatively small areas. Still, the recent so-called catastrophic wildfires are causing insurance companies to get tougher. They're starting to ask homeowners in the woods to do more before they get a policy issued or renewed.

WALKER: When it comes to wildfire and they're looking at that risk, we know with wildfire there is much we can do to be able to make those properties safer. The science shows us that with the defensible space, the proper building materials, with fuels away from the home, that those can go a long way to saving a home.

SIEGLER: But broadly, that risk calculation the insurance companies are making is skewed by one major thing. See, underwriting all of this is the fact that local, state and federal agencies respond to, fight, and stop almost every wildfire. Literally thousands of wildfires ignite every year. Only a tiny fraction end up damaging property. Take even this month's huge Black Forest Fire, also near Colorado Springs. Over 500 homes were destroyed but several thousand more were saved. Ray Rasker is executive director of the Montana-based think-tank Headwaters Economics.

RAY RASKER: Insurance is based on risk, and your risk is reduced when the cost of defending the homes is paid for by somebody else.

SIEGLER: He means taxpayers. Last year alone, the U.S. Forest Service budgeted almost a billion dollars for wildfires. The bulk of that money went to battle blazes that threatened homes and cities.

RASKER: And it's not until we start shifting that cost responsibility more to the local level that we're going to see a change in the pattern of where people build homes.

SIEGLER: Or rebuild them after the fires. Rasker says until a county or a city has to absorb some of the true costs of building in the woods, nothing is going to change, and the insurance industry will keep writing policies for people who want to live there. Kirk Siegler, NPR News.

(SOUNDBITE OF MUSIC)

MARTIN: You're listening to WEEKEND EDITION from NPR News. Transcript provided by NPR, Copyright NPR.

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