Fires’ Cost to Insurers Is in Range of Billion

As bad as the California fires look on television and as horrible as they are for families with homes in their path, the wildfires are doing much less damage than Hurricane Katrina two years ago, and they are going to cost only a fraction of the .1 billion that insurance companies paid out for the hurricane.

Nearly 1,500 homes have been destroyed so far by the fires, and hundreds more have been damaged. Financial analysts and insurance experts are estimating the potential costs to insurers to be about billion.

But the property insurance industry - with more than 3 billion in capital - can take that kind of a loss in stride. It reported more than 0 billion in sales of policies last year, and a record profit of nearly billion.

So right now, from a business standpoint, "the losses look pretty minimal," said Loretta L. Worters, a spokeswoman for the Insurance Information Institute, a trade group in New York.

For families who lose their homes, of course, rebuilding will be a lengthy struggle, as insurance companies haggle over what is covered and what is not. With concentrations of dozens of homes destroyed, it is also going to be difficult to get contractors to start rebuilding. Costs for materials like plywood and roofing tiles are likely to skyrocket, as they did after Hurricane Katrina and other storms.

"There's a lot of anxiety, I don't care who you are," said Andrew Barile, an insurance consultant who grabbed passports and bank statements and a handful of clothes and, with his wife and son, evacuated his five-bedroom home in Rancho Santa Fe, Calif., at 8 a.m. Monday.

Settling claims, however, is generally expected to be more straightforward than after Hurricane Katrina. In that storm, much of the damage was caused by flooding, which is not covered by most home insurance policies. Thousands of homeowners argued in lawsuits that the flooding they experienced had been caused by hurricane winds and that their policies should pay, leading to lengthy court fights. The courts have general ruled in favor of the insurance companies.

Fire, on the other hand, was the first coverage contained in the first home insurance policy hundreds of years ago, and it is clear that insurance companies must cover it. But Randy Maniloff, a lawyer in Philadelphia who specializes in defending insurance companies, said many homeowners would probably find that they did not buy enough coverage to rebuild their homes.

After the worst recent outbreak of wildfires destroyed several thousand homes on the edge of San Diego in 2003, homeowners filed hundreds of lawsuits, Mr. Maniloff said, claiming that their agents and insurance companies should have advised them to buy more coverage. But this past April, he said, the first trial involving those cases ended in favor of the insurance company.

Before the fires, insurance experts said, insurers were competing with one another for customers in California and offering many options as incentives. Now, some experts say they expect the insurers to tighten their standards by not selling or renewing policies in some areas with high risk of fires.

But Robert P. Hartwig, president of the Insurance Information Institute, said he expected few if any changes in the availability and price of home insurance in California.

"An event of this magnitude is already built into the rates," he said. "The risk is already reflected in the price of coverage. People in the high-risk areas already pay much more for coverage than people who live in areas that are not so prone to fire."

Insurers will have to pay more for evacuations caused by this disaster than they did after Hurricane Katrina. While many homeowners had to rely on the federal government to pay for hotels, meals and other extra daily costs resulting from the evacuation, California law requires insurers to pay such costs. In all other states, insurance companies have to pay only for so-called additional living expenses when there is damage to a home.