AM Best Says Demand Surge and Inflation to Amplify Colorado Wildfire Losses



AM Best expects demand surge and rising inflationary pressures on building costs to add to overall loss estimates in the recent wildfires in Colorado.

In a commentary AM Best notes that early industry estimates place losses in the late-December wildfires at roughly $1 billion.

This is in line with an estimate last week from Karen Clark & Co.

Direct premiums written on property insurance lines in Colorado during 2020 were roughly $6.9 billion, so the losses likely will account for roughly 15 percentage points on the industry’s property loss ratio within the state, according to AM Best.

The commentary states that a loss of this size is likely to bring about a local demand surge, especially given existing supply chain backlogs. Lumber prices are still nearly triple their pre-pandemic prices two years ago, and remote work environments during the pandemic, combined with individual stimulus payments led many people to expand their homes, increasing demand for lumber without any increase in supply, according to AM Best.

AM Best also expects a ripple effect nationally considering that this event also follows the Kentucky tornado earlier in December 2021.

“Typically, wildfires do not occur at this time of year in Colorado as cold weather and snow limit the spread of fire,” said Christopher Graham, senior industry analyst, AM Best. “These factors will delay repairs, increasing the cost of alternative housing for some time, and possibly even cost per night given that this is the area’s peak ski season.”

Related:

Topics
Catastrophe
Natural Disasters
Profit Loss
Wildfire
AM Best
Colorado

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