The costs of forest fire insurance are skyrocketing

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MUNICH (Reuters) – Forest fires are becoming increasingly likely due to climate change and costs for insurers, with the deadly fire that ravaged northern California during the most expensive natural disaster from 2018, Munich Re (MUVGn.DE) said Tuesday.

FILE PHOTO: A group of firefighters from the US Forest Service are watching a fire back while fighting to save homes at Camp Fire in Paradise, California, USA, November 8, 2018. REUTERS / Stephen Lam / File Photo

The California fire that devastated the small town of Paradise in November caused losses of $ 16.5 billion, of which $ 12.5 billion was insured, according to the annual report of the reinsurer on disasters.

Natural disasters worldwide resulted in economic damage of $ 160 billion in 2018. This was down from $ 350 billion in the previous year, but several devastating hurricanes contributed to the significant losses recorded in 2017 .

Insurers and reinsurers spent $ 80 billion on natural catastrophe claims last year, up from $ 140 billion a year earlier, but nearly double the average of $ 41 billion over 30 years, announced the reinsurer.

Torsten Jeworrek, a board member of Munich Re, said that the year 2018 had been marked by several serious natural disasters resulting in many insured losses.

"This includes the unusual coincidence of severe cyclones in the United States and Japan and the devastating wildfires in California," he said, adding that climate change seemed to make such a big fire.

Insurers spent $ 18 billion on two huge fires in the United States in 2018, the equivalent of one in four dollars they spent on natural disasters.

Ernst Rauch, chief climate scientist of the reinsurer, told Reuters that forest fires are entering a whole new dimension, costing tens of billions of dollars.

"Increasingly higher temperatures lead to more and more droughts, and high humidity in winter means that shrubs grow rapidly, creating a highly flammable material during dry summers," he said.

Rauch said it was doubtful that high-risk areas could continue to be populated without taking additional measures, such as building homes further away from the forest and with better safety standards.

In Europe, an exceptionally hot summer caused a drought that caused considerable damage to the agricultural sector and was the continent's most expensive natural disaster, worth $ 3.9 billion. However, only a fraction of these losses were insured.

Reinsurers act as financial support for insurance companies, paying a portion of large claims in the event of a storm or earthquake in return for a portion of the premiums.

Hurricanes and typhoons caused $ 56 billion in damage last year. Hurricane Michael, which devastated Florida, was the most expensive insurer, resulting in losses of $ 10 billion.

The review did not produce any results for Munich Re. The reinsurer is expected to report its 4th quarter results on February 6th.

Report by Alexander Huebner; Written by Caroline Copley; Edited by David Goodman