The Wildfires in Chile—Impact on the Insurance Industry
It is well-known that South America is vulnerable to earthquakes, forest fires, floods, and volcanic eruptions. While the risk of catastrophe
is high, no one could have anticipated the devastation wrought by the recent
wildfires that have already blazed through 593,000 acres of Chilean terrain.
The fires have destroyed thousands of homes and killed eleven people. Chile’s
large monoculture plantations and record-high temperatures have contributed to the rapid spread and made it more difficult to prevent
spreading into communities and towns. The devastation will only continue—of the
118 fires, 59 are still active.
In efforts to alleviate the loss, various countries have supplied troops of
firefighters, donated money and provided resources to support humanitarian
needs of the communities where homes were completely destroyed.
The amount of wildfire destruction to date is
unprecedented. When matters of this magnitude are unprecedented in a geographic
region, insurers are bound to incur heavy financial impact. Property is the most exposed insurance business when it comes to wildfires because
the losses include not only the destroyed structures and contents, but living
expenses and home cleaning as well. Most homeowners’ policies cover damage due
to fire, and in turn, when a home is completely destroyed by fire, the
insurance company may be responsible for completely rebuilding the home.
Comparing past wildfire catastrophes in the United States
may provide insight as to the impact the wildfires could have on the Chilean
insurance market. California has become notorious for wildfires over the last
fifty years, and this has caused insurance companies to reassess which homes they will insure. Today, if an insurance
company identifies a home as a “high risk location,” a California resident may
be denied coverage or the policy cancelled. Insurers learned some lessons.