Fire costs likely to trigger rare Oregon insurance policy | Local


GARY A. WARNER Oregon Bureau of Capital

Oregon will likely file a claim on its one-of-a-kind wildland fire insurance policy with Lloyd’s of London.

“It looks like it’s going to be around $ 19 million,” said Jim Gersbach, spokesperson for the Oregon Department of Forests.

The policy with the 335-year-old UK risk insurance pool will help pay for the fires that have burned 225,007 acres of the 16 million acres protected by ODF.

ODF has purchased the insurance since 1973 as coverage against the costs of fighting fires that could overwhelm the budget of a heavily forested state with limited resources to fight major fires.

The last district of Oregon declared the fire season over on Oct. 22. While insurance coverage runs from April to April, Gersbach said almost all fires and costs occur between late spring and mid-autumn.

The ODF calculates its 2021 spending on fire suppression at just under $ 129.2 million. After federal assistance and other repayments, the net amount is just under $ 69 million.

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As part of its policy with Lloyd’s, the state covers the first $ 50 million in expenses – a kind of insurance deductible.

Above $ 50 million, Lloyd’s covers the next $ 25 million.

If the costs are over $ 75 million, the bill goes to the state.

But when the costs get this high, the fires reach the level of a catastrophic catastrophe, which happened in 2020.

The 2020 Labor Day fires burned more than one million acres in the state, destroyed 4,000 homes, killed 11 people and forced 40,000 people to evacuate their homes. Winds causing fires on the west face of the Cascades accelerated along the river valleys, reaching the outer suburbs of Portland, Salem, Eugene and Roseburg. A rapid fire north of Ashland destroyed swathes of the towns of Talent and Phoenix.

In total, the 2020 fires burned 1.14 million acres in Oregon, including 399,670 acres of ODF protected land.

But the scale of the fires brought a torrent of federal disaster assistance.

The final ODF cost of the 2020 wildfires was around $ 130 million. But the bill was offset by more than $ 70 million in federal disaster assistance, as well as additional aid and fees paid to ODF.

This pushed the net fire costs for ODF in 2020 below $ 50 million. There would be no appeal to Lloyd’s of London.

“In the end, we didn’t have to file a claim,” Gersbach said.

Oregon currently pays $ 4,131,871 per year for the police. The cost is shared between the state and the owners of private forest land. Landowners pay their share through a property tax formula.

Gersbach said that for more than four decades, the state received $ 99 million in claims payments from Lloyd’s, while paying $ 75 million in premiums. ODF last filed claims in 2013 for $ 25 million and in 2014 for $ 23.2 million

The current policy runs until April 15, 2022. Lloyd’s of London carries just over 90% of the policy, with Nashville-based Acceptance insurance taking care of the rest.

Over the winter, ODF and Lloyd’s of London will negotiate a new policy and premium, which must be approved by the legislature and Governor Kate Brown.

The number and size of fires have increased over the past decade. But the state has expanded its fire prevention and fighting capabilities. Both factors will affect the cost of a new policy.

A one-of-a-kind insurance policy is not unusual for Lloyd’s of London. It started in 1686 as a company selling marine insurance from a table at the back of a cafe near the River Thames in central London.

Since an act of Parliament in 1871, Lloyd’s has evolved into a risk pool. Today, Lloyd’s of London has around 90 members – companies, investment funds and a few individuals.

Policy payments are drawn from a risk pool of approximately $ 48 billion. The broad spread of risk allows Lloyd’s to mitigate the impact of costs on any member.

Profits are also shared, with members benefiting from premiums paid on the majority of policies that are not activated in a given year.

Lloyd’s still sells marine insurance and is based in the same neighborhood as the cafe.

Most of its global business is handled online, but Lloyd’s is giving a nod to its past by maintaining an underwriting room in London, with an atrium 197 feet high.

Over the decades and centuries, Lloyd’s has branched out into almost every area of ​​the insurance market, including some high-profile quirky policies that have made the company name known to the world. Everything is insured, from the legs of 1940s actress Betty Grable to the hands of Rolling Stones guitarist Keith Richards.

Most years Lloyd’s generates large profits for its members. But the COVID-19 pandemic has resulted in two extraordinarily difficult years. Coronavirus-related policy payments topped $ 8.5 billion in 2020, the biggest event in Lloyd’s long history.

Insurance policies are based on probable risk calculations drawn from decades, if not centuries, of actuarial statistics. But COVID-19 was a “black swan” – a term for a rare and invisible disaster of epic magnitude.

The pandemic inundated Lloyd’s with claims, leading investors in the pool to absorb a loss of $ 1.24 billion in 2020. But Lloyd’s doesn’t just sell insurance, it buys it too. Lloyd’s investors limit their ultimate financial exposure by purchasing annual “reinsurance” policies that come into effect when costs exceed a specific rate or level.

While ODF will have to wait to meet with Lloyd’s to discuss the terms of the next policy, Gersbach said the state hopes to mark the 50th anniversary in 2023 of the state’s “cautious relationship” with Lloyd’s of London.


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