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Peril events push reconstruction costs higher, widen liability risks

Verisk is analyzing the multi-faceted impacts from recent catastrophes, including Hurricane Idalia, Canadian and Hawaiian wildfires.

Reconstruction costs following Hawaiian wildfires trend higher than the national average

Recent wildfires in Maui, HI, have caused more than 100 deaths, damaged or destroyed over 2,000 structures, and cut off power for thousands of people.

Such natural hazards often impact the supply chain: Materials burn, dangerous conditions cause production shutdowns, and demand becomes localized to the affected areas, making it difficult for supply to meet demand. These disruptions can mean higher reconstruction costs.

Using 360Value® in a recent reconstruction cost trend analysis, Verisk found that Lahaina—the main region impacted by the fires—had 42.8% higher reconstruction costs than U.S. national levels in the lower 48 states. The average residential total loss was around $700,000, with replacement cost estimates (RCE) ranging from $159,000 to $6.85 million.

The most comparable event is the 2022 Marshall Fire in Boulder, Colorado, where more than 1,000 structures were destroyed or damaged with more than $880 million in reconstruction cost value reported. Reconstruction costs in Lahaina are 29% higher than the Marshall fire costs, adjusted to August 2023 prices. The difference may be partially due to pandemic-driven inflation that continues to affect reconstruction costs nationwide.

A 12-month forecast change shows reconstruction costs for Lahaina in August 2024 trending toward 44.2% higher than the lower 48 states—an increase of 1.4%. For Lahaina, the 12-month forecast increase is trending toward 6.8%. To put that into perspective, looking at the aforementioned $700,000 average, RCEs a year from now are expected to average around $747,600 if reconstruction costs trend the same.

Multiple industries face increased liability risk

Despite the primary cause(s) being as yet unknown, some media outlets report that state officials and the electric utility that provides 95% of the state’s electricity had been aware of wildfire risk in the affected areas for years, with some commentators raising concerns that the state and utility may have failed to implement specific preparation and risk mitigation measures.

A class-action lawsuit has been filed against the utility, alleging that it contributed to the damage by failing to shut off its power lines amid fire risk conditions.Large-scale destruction and economic loss may further spur damaged parties to seek to hold potentially negligent companies or organizations liable. Verisk is monitoring this risk via the Arium platform for assessing liability exposures.

According to the Arium team’s assessment, liability risk may increase for the electric utility and possibly spread to other industries that have some connection to wildfire risk and mitigation in the area, including:

  • Contractors hired by the utility for maintenance; repair; or fire hazard reduction work, such as vegetation management
  • Manufacturers of potentially faulty power or maintenance equipment
  • Other companies (such as communications companies) that own equipment that may also be found to have contributed to the fire
  • Engineering and other technical consulting services
  • Local or state government and emergency responders
  • Construction, real estate, and architecture firms, if damaged structures are found to have been inadequately constructed or designed for fire risk

Potential lawsuits may be brought on behalf of fire victims attempting to recoup losses arising directly from the fires. Shareholder lawsuits may be filed against companies believed to have mismanaged their risks concerning the fires. Notably, the electric utility’s stock price dropped by almost 40% following the fires and the class-action filing. Litigation could also implicate lawyers, management consultants, or other advisers for their role in any alleged mismanagement or misrepresentation of companies’ financial risks due to wildfires.

Hurricane Idalia highlights increased insured losses

Wildfires are just one of several catastrophes impacting the country. Verisk is currently monitoring fallout from Hurricane Idalia, which made landfall in Taylor County within Florida’s Big Bend region, near Keaton Beach, as a Category 3 hurricane on August 30.

Verisk estimates industry insured losses to onshore property for Hurricane Idalia will range from $2.5 billion to $4 billion.

Figure 1 - Respond hurricane forecast footprint for Hurricane Idalia as seen in Respond MAP.

While Idalia made landfall in a sparsely populated region, catastrophic damage was observed in several small communities in Florida including Perry, which took the brunt of the storm’s western eyewall shortly after landfall, and Cedar Key, which experienced historic storm surge inundation.

Idalia reached Georgia near Valdosta as a Category 1 storm, bringing six inches of rain and powerful winds that caused widespread flooding and considerable structural and roof damage. Idalia’s northeast track led the storm offshore in the early morning of August 31, where it brought tropical storm-force winds, heavy rain, and powerful surf to the North Carolina coast.

Other cities along Idalia’s path—including Tallahassee, Gainesville, Jacksonville, FL and Valdosta, Savannah, GA—reported numerous downed trees. This area is dominated by large pines, which means extensive cleanup, roof replacements, and other associated costs. In the aftermath of 2018’s Hurricane Michael (a much stronger storm than Idalia), the city of Tallahassee alone reported losses in excess of $1 billion, driven primarily by tree-related damage.

Manufactured homes constitute a significant portion of residences in Florida’s Big Bend region, where several saw massive damage—including roof loss, damage to wall siding, and near-total destruction due to wind and surge (the latter in coastal areas).

For 2023, Verisk’s extreme event solutions models indicate a new high of $133 billion in global, catastrophe-driven insured average annual loss. Replacement costs are rising, due largely to inflation, and climate change is impacting the frequency and severity of natural catastrophes. Beyond hurricanes and earthquakes, flood, severe thunderstorm, and wildfire now account for the majority of overall annual losses. Finally, while the $133 billion average annual loss is higher than the five year average experienced by the insurance industry, even greater losses can occur. For example, there is a 1-in-20 year chance (i.e., a 5% chance) that insured global losses could exceed $230 billion, and the insurance industry needs to be prepared to experience this level of loss.

As catastrophic events become more frequent, insurers face increasingly complex risks. Explore reconstruction cost trends at the national and state levels and strategies to manage peril risk in your portfolio.


Eric Gesick

Eric Gesick is the Senior Vice President of Liability Analytics. You can reach Eric at EGesick@verisk.com.

Trish Hopkinson

Trish Hopkinson is Head of 360Value, for Verisk. You can reach Trish at thopkinson@verisk.com.

Dr. Karthik Ramanathan

Dr. Karthik Ramanathan is a vice president and principal engineer in the research and modeling group on the extreme event solutions team at Verisk. You can reach Karthik at kramanathan@verisk.com


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Verisk’s modeled insured loss estimates do include:

  • Losses to onshore residential, commercial and industrial properties and automobiles for their building, contents and time element coverage
  • Impact of demand surge

Verisk’s modeled insured loss estimates do not include:

  • Losses paid out by the National Flood Insurance Program
  • Losses exacerbated by litigation, fraudulent assignment of benefits or social inflation
  • Storm surge leakage losses paid on wind only policies due to government intervention
  • Losses from precipitation-induced flooding
  • Losses to inland marine, ocean-going marine cargo and hull and pleasure boats
  • Losses to uninsured properties
  • Losses to infrastructure
  • Losses from extra-contractual obligations
  • Losses from hazardous waste cleanup, vandalism or civil commotion, whether directly or indirectly caused by the event
  • Losses resulting from the compromise of existing defenses (e.g., natural and man-made levees)
  • Loss adjustment expenses
  • Other non-modeled losses, including those resulting from tornadoes spawned by the storm
  • Losses for U.S. offshore assets and non-U.S. property

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