Smaller Hawaii-Focused Insurers Could Face Greater Wildfire Impacts

Smaller insurers with a heavier concentration of business within Hawaii could experience more severe impacts to their capital plans, reinsurance, and enterprise risk management programs as a result of the Maui wildfires, according to A.M. Best.

In a new Best's Commentary, the rating agency said that large insurers with business spread across the continental US will have the capital and reinsurance coverage needed to absorb losses related to the wildfires that began August 8. Best noted that the wildfires occurred in a small and highly concentrated area and caused devastating damages and loss of life but were relatively contained geographically.

Best said that while there is greater concern for the smaller, more concentrated insurers that underwrite more of their policies in Hawaii, the lines of insurance business exposed to losses from the wildfires account for more than 10 percent of the direct premium written by just three companies, with the largest concentration being slightly more than 30 percent.

Moving forward, cost inflation and supply chain issues, especially with demand for fire-resistant materials, could pose additional challenges for insurers, the rating agency said. "The demand surge for such materials will increase the cost precipitously of rebuilding as well as retrofitting existing structures," Raymond Thomson, associate director at A.M. Best, said in a statement.

Best noted that while the investigation into the Maui fires' origins continues, insurers may have subrogation opportunities. "Similarities are being drawn to the situation with PG&E regarding the 2018 California wildfires," the Best statement said. "If investigators find that power lines were the cause and that more effective risk mitigation measures should have been taken prior to the wildfire breakout, litigation could result."