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.
There are various large Chilean, American, and European insurers that compete for business in Chile. According to the Chilean Insurance Association, Mapfre carries the largest market share for fire and perils insurance; and after acquiring one of the largest Chilean-based insurance companies, Liberty Mutual is now the largest provider of property and casualty insurance in Chile. While the wildfires in Chile may be unprecedented, catastrophes in the country are not foreign. In 2010, Chile was struck by earthquakes and suffered heavy insured and economic losses and the large international insurers spent billions of dollars to rebuild and eventually re-stabilize the Chilean economy.
In the wake of this catastrophe, insurers are likely to re-evaluate their wildfire loss exposure throughout Chile. The risk of wildfires will only continue to rise in correlation with population expansion into less-developed areas, combined with longer droughts and heatwaves wrought by global climate change. In areas of particular risk (such as southern Chile), insurers should work to mitigate risk as much as possible by zoning certain regions and implementing early warning systems.
Posted by Victoria Vish