Counting Their Blessings : Local Insurers Escaped Recent Southland Fires Largely Unscathed

From his seventh-floor office in Woodland Hills last week, Ric Hill, a vice president at 20th Century Industries, could see smoke from the Topanga Canyon fire mushrooming into the sky. The fire was only a few miles away, but it was the wind that was on his mind.

20th Century insures 208,000 homes in California, including many in Calabasas and the western San Fernando Valley. “There was quite a lot of concern up here,” Hill said. “It looked to us like the fire was traveling northeast,” toward Calabasas and the Valley.

As it turned out, the wind blew southwest and swept into the Malibu canyons, where 20th Century has few policies because the company does not insure properties in brush-fire areas. “We don’t write (insurance) in brush areas at all. The firefighters can’t get to homes there, so they have to let them burn,” Hill said.

So far 20th Century has just 30 fire claims, estimated at several million dollars, almost all of them from the Altadena and Laguna Beach fires two weeks ago. As for the insurer’s toll from the Calabasas/Malibu fire: one claim for less than $10,000.

Luck and foresight cut 20th Century’s losses in the latest catastrophe, and those same things helped keep fire claims modest for several other insurers operating in the Valley area.

TIG insurance in Woodland Hills, formerly known as Transamerica Insurance Group, a year ago started cutting back from insuring homes in brush-fire areas. To date the property-casualty insurer has received $4.8 million in claims from recent fires in Southern California, although that doesn’t include last week’s Calabasas/Malibu fires.

The company changed its strategy after suffering $121 million in claims from the 1991 Oakland hill fires, and decided to stop writing new policies for homes in brush-fire areas anywhere in California. TIG won’t say how many policies in the Santa Monica Mountains it has dropped. But the insurer specializes in upscale homes, so it’s likely that last year’s decision saved the struggling company millions of dollars in claims.

“In light of what just happened, it was the correct decision,” said Cheryl Friedling, a spokeswoman for TIG, which is owned by New York-based TIG Holdings Inc.

20th Century, founded in 1956 by its chairman, Louis Foster, is best known for auto insurance, and it tries to keep its premiums down by insuring only drivers with good records. When 20th Century added home insurance in 1982, the company followed a similar conservative approach.

TIG and 20th Century, as well as the rest of the nearly 280 insurers who operate in the state do, however, face additional fees from the California Fair Plan, an industry-sponsored insurance pool of last resort in brush fire areas.

The Fair Plan faces claims of well over $100 million from the wildfires of the last two weeks, and will call upon its insurance company members to replenish its depleted reserves--the first time the program has been forced to assess members in its 25-year history. The Fair Plan insures about 18,000 homes in the Santa Monica Mountains, slightly more than half of all the homes in the area ravaged by last week’s fires.

“Very, very few (companies) write policies in brush areas, and it’s getting less with every fire,” said Dennis Halio, owner of Elden Insurance Services Inc., an independent insurance broker in Calabasas. “Some companies I represent even want to be a mile or two away from a brush-fire area.”

Halio says virtually all insurance companies, when considering coverage of homes in Los Angeles County, refer to a street guide that has orange-colored lines around brush-fire areas. “The first thing I do is look up the house on the map and if it’s in a brush-fire area, I tell them I can’t help them.”

Yet for all the damage caused by two weeks of fires, which killed three people and destroyed at least 1,000 homes, including 300 homes in the Malibu-Calabasas area, the insurance industry is largely counting its blessings.

“We were very fortunate that the fire was able to be contained and did not spread into the Malibu Colony,” said Maylu Korkuch, a spokesperson for the Chubb Group of Insurance in Warren, N. J. Chubb, which also specializes in the upscale market, has so far received 64 claims from the fires, mostly from damage in Orange County.

If the fire had moved into the exclusive Malibu development, “I’d be giving you very different numbers today,” Korkuch said. “We have a significant number of clients in Malibu Colony.”

John Snyder, senior vice president at A. M. Best, the New Jersey-based insurance rating agency, estimated the insured losses from the Southern California fires of the past two weeks at between $500 million and $700 million. As a result, premiums could go up, he said. “And companies are going to be more adamant they don’t have concentration in areas of wildfires.”

The brunt of the losses will be felt by the three largest home insurers in California--State Farm, Allstate and Farmers Insurance Group--and the Fair Plan.

Excluding claims from last week’s Calabasas/Malibu blaze, so far Allstate has received $57 million in home and car claims from the fires. State Farm, the state’s largest home insurer, said its losses topped $60 million, while Farmers estimated losses of more than $60 million.

These three big insurers say they can easily absorb the fire losses, which are mild compared with the 1991 Oakland fires. That disaster killed 25 people, destroyed more than 3,300 homes and caused an estimated $1.7 billion in insured property losses.

“This is not a huge or major catastrophe,” said Dick Donegan, Allstate’s regional underwriting manager based in Glendale. “And it won’t have much impact,” he said.

For TIG and 20th Century, their modest losses will be further reduced by reinsurance, which insurance firms themselves buy from Lloyds of London and other companies in Europe and Bermuda to protect against losses. In the Oakland fires, TIG cut its losses from $121 million to $21 million because of reinsurance.

But because of the latest fires, companies may find it harder and more expensive to buy reinsurance.

“There’s a very good chance catastrophe reinsurance could go up,” said Jack Graham, executive vice president at E. W. Blanch Co., a reinsurance broker in San Francisco. Graham said the entire reinsurance market has been shaken the last couple of years because of an onslaught of disasters, from the Oakland fires to Hurricane Andrew to the Los Angeles riots. “And now California has been hit with this,” he said.

Zenith National Insurance Corp., a Woodland Hills property-casualty and workers’ compensation insurer, said it was fortunate to escape with fewer than 10 fire claims so far, said Fredricka Taubitz, chief financial officer.

“We’ve been very lucky,” she said. Last year, Zenith had big claims from Hurricane Andrew that resulted in losses of $9.5 million. In California, Zenith National insures mainly farmlands and homes in rural areas.

Another insurer who watched the smoke from his office last week in Woodland Hills was Erwin Cheldin, chairman of Unico American. From his window on Mulholland Road, Cheldin got a good look at the fires. It reminded Cheldin of the riots, which with $21 million in losses, crushed his tiny property-casualty firm insuring mostly small businesses.

But this time, Unico American escaped with just two claims from two Topanga Canyon businesses that were damaged by smoke. Unico American insures no more than 100 homes in Southern California, and none of them in brush-fire areas. “We’ve been hanging on with our fingernails” after last year’s riots, Cheldin said. “Luckily we missed this one.”