Best’s Commentary: Demand Surge and Inflation Will Amplify Colorado Wildfire Losses

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)--
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 its Best’s Commentary, titled, “Demand Surge and Inflation Will Amplify Colorado Wildfire Losses,” AM Best notes that early industry estimates place losses in the late-December wildfires at approximately $1 billion. Direct premiums written on property insurance lines in Colorado during 2020 were approximately $6.9 billion, so the losses likely will account for approximately 15 percentage points on the industry’s property loss ratio within the state. According to the commentary, a loss of this size is likely to bring about a local demand surge, especially given existing supply chain backlogs. Furthermore, lumber prices are still nearly triple their pre-pandemic prices two years ago. Additionally, 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. Not only will rapid demand pressure prices locally, but 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.”

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=316485.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.