Moody’s Comments on Maui Wildfire Exposure

Moody’s Investors Service’s insurance team has published a brief report on estimated P&C losses from the Maui wildfires. Here are some extracts;

As of 11 August, several wildfires had caused a tragic loss of life and destroyed most of the Lahaina community in western Maui, Hawaii (Aa2 stable). The Pacific Disaster Center and FEMA estimated that 2207 structures were damaged or destroyed in the Lahaina fire
and 2719 structures exposed. Given the damage assessment and Lahaina’s relatively high $1.5 million average single-family home value, we estimate insured losses will be at least $1 billion and primarily affect P&C insurers with significant homeowners and commercial
property market share in Lahaina. It will take weeks or months to determine the magnitude of the insured damages.

Although the causes of the fires are still unknown, they spread quickly amid dry conditions and heavy winds. The Lahaina wildfire also spread rapidly because most of the area’s buildings were close together and made of combustible material such as wood.

While primary insurers, such as State Farm Mutual Automobile Insurance Co., Tokio Marine Holdings Inc., The Allstate Corporation (A3 negative) have exposure in Hawaii, we expect that large carriers will readily absorb the losses given that business in Hawaii is a small fraction of their overall insured portfolios. These firms have considerable resources to withstand catastrophe events given their careful monitoring of exposures, geographic diversification, high quality reinsurance protection and strong capital bases.

In addition to homeowners and commercial property, we expect insurers to face losses for personal watercraft and autos with
comprehensive coverage. Some reinsurers could incur a share of the wildfire losses through catastrophe policies as well as quota share
and per risk policies.

Construction costs are typically high in Hawaii because most building materials need to be brought to the islands. But construction
materials and labor costs increased significantly during the pandemic and the increase is driving higher property replacement
costs, which feeds through to higher homeowners and commercial property claims. Maui may need construction workers from other
Hawaiian Islands or from the US mainland, and construction workers may face their own housing shortages. The increase in demand for
construction labor and materials following the wildfires is likely to lead to higher insured losses.

IE NOTES

According to a Maui real estate website the average property value is around $1m US dollars. Sales were down by about 36% in 2022. More here.

The wildfires are currently contained, but not put out. According to Google Maps there are three separate fire zones on Maui right now. There’s more background on the upcountry fires, still smouldering inland, at the Maui Times, the only independent news media site on the island. Plus more background on the rescue and aid efforts underway.

EV BATTERY PACKS, A FUTURE WILDFIRE ACCELERANT?

Let’s think about the insurance future for a moment. Do battery packs in hybrids and EVs help accelerate the spread of the fires and pose a secondary fire risk?

It is a possibility regarding the spread, although not as likely as the strength and direction of the wind.

But there are wider issues regarding burning battery packs in future wildfires worth noting. First this becomes a bigger risk as governments promote the switch away from petrol/diesel to battery vehicles.

Secondly, battery pack fires may cause more expensive, irreparable damage to driveways and roads. It was noted in Sacremento that when a Tesla caught fire in a scrapyard firefighters had to dig a pit, fill it with water to put the blaze out. Firefighters estimated the heat to be 3000 degrees Celsius. Those fire pit techniques using tractors are not possible in a wildfire situation, so battery packs will keep generating heat and making the surface area around them highly combustible for hours, possibly days.

Obviously both petrol and hybrid vehicles contain combustible materials, with a potential explosive risk, but once fuel/vapour has burned that’s it – no more accelerant in the tank. However some battery pack cars seem to burn for far longer than petrol/diesel even when firefighters attempt to douse the flames. Lyten noted that one Tesla in Australia burned for 7 days.

Research in Denmark into putting out EV fires inside shipping containers revealed that battery packs continue to burn for a significant time once alight. The recent cargo ship fire in the North Sea is an example of that continuous slow burning. In that regard, battery packs may be a source of secondary ignition in certain wildfire scenarios, once the main fire has passed through a street or single property. This is an area where insurers could do more research into the risks and how to tackle fire “hotspots” as part of the damping down process.

Note the header image for this story is from Pexels, not a Maui fire photo.