California: Fire Costs Flare

As the flames in Southern California continue to spread, insurers predict this will be one of the most expensive blazes on record

The wildfires raging across Southern California are on track to become one of the most expensive fire events in U.S. history. On Oct. 23 the Insurance Information Institute estimated that insured damages from the blaze would reach at least $500 million, including damaged homes, lost business activity, and expenses for the hundreds of thousands of people who have been displaced. "Those are the insured losses," says Robert Hartwig, the institute's president. "The actual economic losses will be higher."

The latest fires have been particularly damaging because dry weather and high winds have combined to make the blazes exceedingly difficult to contain. More than 1,300 homes have been lost, at least five people have died, and an estimated 1 million people have been evacuated. As many as 16 separate fires have roared throughout the region, fanned by winds gusting up to 60 mph. While some have been contained, others have joined together and accelerated in the Santa Ana winds.

State of Emergency

As the damage spread, Governor Arnold Schwarzenegger requested that President George W. Bush declare a state of emergency in seven Southern California counties. Bush agreed to provide federal help with firefighting, evacuation, and emergency protection measures. "The people of California need all the help they can get at this tragic time, and this action will allow our citizens to get the assistance they need," Schwarzenegger said in a statement Tuesday.

Businesses in the region have also been affected. Many shops and restaurants have closed. And some of the biggest employers in the San Diego area have shut down some or all of their operations, including Jack in the Box (JBX), Sempra Energy (SRE), Petco Animal Supplies, and Qualcomm (QCOM). "Qualcomm is deeply saddened by the devastation and impact in our community," the company said in a statement. "We are encouraging our employees to work from home and allowing those who are impacted to take care of themselves and families." A spokeswoman for Sempra says its nonessential employees have been sent home from headquarters, but its executives and crews from its San Diego Gas & Electric have been working "around the clock" to help the firefighting effort.

California's major insurers face significant claims in the weeks and months ahead. The largest home insurers include State Farm Mutual, Farmers Insurance Group, and Allstate (ALL). State Farm said that as of late Tuesday it had received 1,351 claims and reports of 251 homes being destroyed. A spokesman cautioned that the totals will certainly mount. "It's very early," says Bill Sirola, a State Farm representative in California. "These fires are completely unrestrained at this point."

A Legacy of Wildfires

The most expensive fire in recent history was in October, 1991, in Oakland and other parts of Alameda County. That cost $1.7 billion at the time, or $2.5 billion in 2006 dollars, according to the Insurance Information Institute. The blaze started from a grass fire in Berkeley Hills and spread across more than 1,000 acres, destroying more than 3,000 homes.

The next two most expensive fires occurred from Oct. 25 to Nov. 4, 2003. In San Diego County a blaze caused $1.1 billion in damages. Over roughly the same period, San Bernardino County suffered $975 million in damages. Eight of the most expensive fires in the U.S. have taken place in California, according to the insurance institute, with the other two in New Mexico and Arizona.

The $500 million figure is, of course, an estimate. Fire departments in San Diego and elsewhere have been cautious in their assessments of the latest fires because they've been so difficult to contain. In one development that could add to the costs, fires are spreading into Malibu, the tony community northwest of Los Angeles whose residents have included Bob Dylan, Mel Gibson, Pamela Anderson, and Britney Spears. "These are some very large homes that are going to be very expensive to rebuild," says State Farm's Sirola.

Sirola says this latest fire event is reminiscent in some ways of the twin blazes in 2003 that caused a combined $2 billion in damages. Now, like then, there are several individual blazes that have flared and spread, making it difficult for firefighters to concentrate their efforts. "It seems like this fire is following the same trajectory," he says. "Of course, there's no way to estimate. But this is California. We are not strangers to these kinds of tragedies."