The recent wildfires in California have left a trail of destruction with over 15,000 structures destroyed, multiple deaths and displacing over 100,000 people[1]. Estimated economic losses are in the range of USD $130 billion to USD $150 billion[2]. Industry analysts estimate insured losses to vary between USD $20 billion to USD $45 billion, making this event one of the largest natural disasters reaching systemic levels[3]. In comparison, insured losses from Hurricanes Harvey and Irma in 2017 are about USD $30 billion each[11]. This article examines underlying issues, challenges and lessons for the insurance and reinsurance industries from the California’s wildfires and how to address them. Woes for home and business owners Limited availability of insurance With rising catastrophe losses, home and business owners face the challenge of finding insurance cover. Recently, State Farm and Allstate, two major providers of home insurance, have stopped issuing polices in California, citing inadequate pricing to keep up with increasing losses, rising construction expenses and elevated reinsurance costs in the prevailing hard reinsurance market[5]. Limited availability of cover has pushed homeowners in California to seek protection from the state insurer, Fair Access to Insurance Requirements (FAIR) Plan, as a last resort. Underinsurance and a widening protection gap In addition to the limited availability of cover, home and business owners also face the issue of underinsurance. High valued properties may find policy limits insufficient, leaving policyholders underinsured as happened during the wildfire in the Palisades, even though the FAIR Plan sets the personal policy limit at USD $3 million[4]. With underinsurance, the financial burden for business owners can be severe particularly due to co-insurance clauses in commercial property policies. The financial strain caused by a wide gap between actual losses and insurance cover can force a small business to close. Pre-emptive underwriting has also been a concern for policyholders, with insurers cancelling policies in areas once considered safe from wildfires. A comparison of economic and insured losses from the California wildfires also shows a wide protection gap prevalent in the market that’s exacerbated by the limited supply of cover and underinsurance. Impact on pricing and risk modelling Wildfire risk modelling Driven by global warming, secondary perils1 such as floods, wildfire and thunderstorms are increasingly becoming primary drivers of losses. Modelling these perils has become even more challenging with increased frequency and severity attributed to climate change and constant change in exposure with rapid urbanisation and mass population movements. To provide protection for secondary perils, it is paramount that insurers and reinsurers have proper risk assessment capabilities with modelling tools. Adequacy of pricing Inadequate pricing to reflect risk exposure to natural perils has been a major concern for insurers in providing cover. In California, insurers have raised their concerns that the regulatory hurdles limited their ability to raise premium rates to reflect risk exposures with increasing losses, construction costs and reinsurance premiums[5]. Limited supply of reinsurance protection Onerous reinsurance structural changes Broadly, the prevailing hard reinsurance market has forced insurers to adopt onerous structural changes to their reinsurance protection. With increased attachment points, insurers retain more risk exposures than they would have desired, scaling back on covering or excluded risks related to secondary perils as a result. Scaling back on natural catastrophe reinsurance cover In 2024, global insured losses from secondary perils such as floods, wildfires and thunderstorms were above the 10-year average, reaching USD $67 billion [6]. In fact, in recent years, reinsurers have scaled back natural catastrophe cover particularly for secondary perils after suffering heavy losses. This is evident with the dropping of reinsurance cover for modelled catastrophe risks to 33% in 2023, from 46% in the past[5]. Impact of California Wildfires on global reinsurance markets Interestingly, according to industry analysts, the impact from the California wildfires on the global reinsurance market is manageable as reinsured losses are estimated to be within the natural catastrophe budgets of reinsurers for the first quarter of 2025[2]. However, any adverse loss from this event or the development of natural catastrophe losses in 2025 could put further strain on the availability of capacity for natural catastrophe covers. Overcoming challenges and lessons to learn Risk mitigation at ground level Taking risk mitigation measures at ground level can help to improve the resilience to natural disasters. For example, homeowners living in wildfire prone areas can create a defensible space around properties by choosing fire resistant plants and building materials and creating empty spaces between shrubs and trees to mitigate the risk of their properties catching fire[7]. Moreover, back-burning is an effective way to control the spread of wildfire by burning out the fuel between a wildfire and an established control line. The removal of fuel helps to stop the spread and provide suitable conditions to suppress a fire. Risk mitigation at a policy level Policies and Standards formulated at local, state and federal levels are important to reduce the risk of losses from natural disasters. In Australia, the AS 3959:2018 standard specifies the construction requirements for buildings built in bushfire prone areas to improve resistance to bushfires. A positive aspect after a natural disaster is that it provides societies and governments an opportunity to ‘build back better’, which means rebuilding houses and infrastructure to be more resilient to natural disasters. It becomes incumbent on authorities not to issue land for new settlements in areas vulnerable to natural disasters. In addition, other risk mitigation efforts can include relocation and re-zoning of affected areas for better risk management following a disaster event. Improving insurance availability and affordability Addressing pricing inadequacy issues can improve the availability of insurance cover. Initiatives at the government level can include de-tariffication measures and rating reviews. For example, the California state regulator has indicated that it would allow reinsurance costs and actuarial-based fire risk loadings in premiums[5]. With increasing losses from natural disasters particularly related to climate change, insurance affordability has become a key issue for homeowners. In Australia, home insurance affordability has become a major concern, with 15% or 16.1 million households requiring more than four weeks of gross household […]

ARB Indonesia both sponsored and participated in the 28th Indonesia Rendezvous, a key event in the regional insurance and reinsurance industry. As part of our commitment to continuously innovate and strengthen relationships and collaboration, we met with numerous friends, clients, prospects and reinsurers. We are pleased to share ARB Indonesia’s activities during this event

We are pleased to share details of ARB Indonesia’s Company Outing 2024 last month in Yogjakarta, Central Java. Not only was the event an appreciation for the staff for all their hard work and efforts but it was very effective in improving teamwork, enhancing friendships and creating positive engagement internally. We also used the opportunity to share our strategic plans for the future and actual achievements to date. Overall, it was a fun and successful office outing and in particular the Company would like to express their thanks to the organizers.

Excited to share our recent participation in 34th General Arab Insurance Federation (GAIF) Conference 2024 in the beautiful capital of the Sultanate of Oman, Muscat. We were honored to have the opportunity to meet and interact with industry leaders from across the region.

Asia Reinsurance Brokers (ARB) in cooperation with PT Reasuransi Nasional Indonesia (Nasional Re) organized a “Treaty Pricing Training Session” from 13 June 2023 to 15 June 2023. The attendees included Mr Saliya Jinadasa (Senior Divisional Director – Asia Reinsurance Brokers Pte Ltd) as the main speaker at this event, Mr Michael Seward (President Director – PT Asia Reinsurance Brokers Indonesia), Bpk Wayan Sumendra (Director – PT Asia Reinsurance Brokers Indonesia), Bpk Defit (Technical Director – Nasional Re), Bpk Roland Silaban (Head of Treaty Division – Nasional Re), as well as other participants from Nasional Re and PT Asuransi Kredit Indonesia (Askrindo).