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Wildfires Could Singe Three Insurers

State Farm, Zurich and Allstate have 52% of the market for homeowners' insurance in badly burned states.

There's just one month left in the hurricane season, and not a single major storm has made landfall in the U.S., but property casualty insurers aren't off the hook entirely: The driest brush in years has sparked wildfires throughout Southern California, causing upwards of a billion dollars in damage.

As terrible as this week's fires have been, they aren't the biggest this year. According to the National Interagency Fire Center, Idaho has suffered the most, with 1.98 million acres burned in wildfires so far. As of Wednesday, California ranked a distant second at just over 1 million acres, although that figure is no doubt changing rapidly. And the damages in California are likley to be bigger, since it is much more densely populated.

Montana, Nevada and Utah round out the top five states in terms of acres burned.

Exposure in the five Western states that have suffered the most fires so far this year is highly concentrated, with only three insurers on the hook for half of all of the homeowner risk.

In those five states,

State Farm


Zurich Financial Services



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together have 52% of the market share for homeowners' insurance. The 10 companies that write the most homeowners' insurance in these five states have 76% of the total market share.

Not only does this demonstrate the limitation on consumer's choice of coverage; it also shows that a small group of insurers can face major losses.

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While actual claims may not line up exactly with coverage, the insurers with the most exposure are likely to take the biggest hits.

The early estimate of insured losses from the wildfires currently raging in southern California is about $1.6 billion. As early estimates often do, this will likely change dramatically, especially given the concentration of wealth in that area.

Damage caused by fire and smoke is covered under standard homeowners', renters' and business insurance policies and under the comprehensive portion of an auto insurance policy. (There is also coverage for water or other damage incurred by firefighters in the course of extinguishing the fire.)

Even if the current estimate doubles or triples, however, the industry should be able to absorb those losses directly or through reinsurance arrangements.

This and even the

most expensive wildfires in history resulted in a fraction of the losses

caused by major hurricanes. Insured losses from Hurricane Katrina, the most expensive catastrophe in history, reached a staggering $41 billion ($42.6 billion in 2006 dollars), and the industry has had two years to recover, including shoring up reinsurance contracts.

Insurers with Most Exposure to Fire-Prone States

Source: Ratings

Melissa Gannon is director of insurance and bank ratings for Ratings, formerly Weiss Ratings, where she directs the operations of the company's insurance and bank ratings division.

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