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A perfect storm appears to brewing for homeowners and property insurers in the drought-plagued, wildfire-riddled U.S. West – and as odd as it may sound, the trouble may have begun with the pandemic.

Property insurance rates and availability for homeowners living in wildfire-prone areas in the U.S. West – and California in particular, where insurers are increasingly non-renewing riskier bets – are on the way up.

With a severe drought hanging over the Western U.S., and wildfires already blazing in several states, insurers and homeowners may be facing some more tough times ahead.

Beside the scars and devastation left in the wake of any fires that occur this season, it appears the weight of COVID-19 will also be in play when the losses are tallied.

Supply shortages and rising demand could add greatly to catastrophe losses in the form of greater rebuilding costs, warns a report out this week from the American Property Casualty Å˽ðÁ«´«Ã½Ó³»­ Association.

The APCIA report notes that construction materials face a significant “supply and demand imbalance” due to global shipping disruptions, elevated demand for goods and labor, and an “above normal catastrophe season” on the horizon. We’re not only seeing the makings of a bad wildfire season, hurricanes may add pressure to the property insurance market – researchers this week boosted their prediction for named tropical storms in the 2021 Atlantic hurricane season and increased the number of expected hurricanes to eight.

Read the full report on Å˽ðÁ«´«Ã½Ó³»­ Journal’s Research and Trends section.

“We are seeing costs skyrocketing, while supply is depleted,” said Karen Collins, an assistant vice president at APCIA, who helped put together the report.

Catastrophe 2021

Manufacturing shutdowns to keep workers safe amid the pandemic have driven up the costs of important housing supplies, such as lumber, and have created worrisome global supply chain issues.

So, any losses incurred by wildfires or hurricanes during this period of soaring costs will likely boost losses, and put homeowners who have policies with a fixed reconstruction value in a bad bind.

The year started out as an expensive one for catastrophes, kicking off with one of the largest winter freeze losses in U.S. history in February, during which Texas experienced its largest non-hurricane weather loss event, the report states.

The Texas freeze led to hundreds of thousands of residential and commercial property claims in the region, with insured losses estimated at $10 billion to $20 billion.

By comparison, first-quarter catastrophe losses have averaged $4.6 billion over the prior 10 years, with a high of $7.6 billion in 2017, according to APCIA.

COVID-19

Back to COVID-19, an ongoing catastrophe in-and-of itself, which led to a major reduction in manufacturing of key construction materials in early 2020 just as consumer demand shifted from services to goods.

Since demand for lumber crashed in the Great Recession as homebuilding screeched to a halt, the lumber industry anticipated a similar slowdown in the pandemic and cut production and unloaded inventory in fears of a looming crash, the report notes.

“However, demand went in the opposite direction, catching homebuilders and lumber producers off guard,” the report states. “A shift to remote work during Covid drove up demand for larger space, sending city dwellers searching for larger homes in the suburbs.”

All the free time on the hands of those working from home and no longer commuting, and those who were unemployed, prompted existing homeowners to head to Home Depot and Lowes and undertake remodeling projects, while first time-buyers sought to take advantage of historically low mortgage rates.

“In a market already severely short on inventory, homebuilders responded to this surge in demand for housing by cranking up production in autumn 2020, sending single-family starts (seasonally adjusted) to their highest level since 2006,” the report states.

The price of lumber rose by more than 300% between April and May, along with longer lead times to secure materials, with the National Association of Home Builders reporting the to the cost of building the average single-family home.

While lumber costs have come down since May, they aren’t expected to return to normal anytime soon, according to the report.

Shipping

Backlogs in ports have added pressure in the form of higher costs and lead times.

Numerous shipping bottlenecks occurred in 2021, including a weeklong blockage of the Suez Canal in March caused by a grounded container ship, delayed deliveries of roughly 250,000 containers by about a month.

Cargo containers lingered longer at San Pedro Bay’s massive terminals in Los Angeles in May than they did the month before, according to .

The average dwell time for a container in San Pedro Bay in May was four days, longer than the 3.7 day-average from April, while the average dwell time for containers that waited at terminals beyond five days also rose in May, up 15.5% from 13.1% in April, according to the publication.

New research from the Pacific Maritime Association shows the global supply chain collapse has let to sluggish goods movement throughout the country, including at the Ports of Los Angeles and Long Beach – the largest maritime gateway in the Western Hemisphere. The report shows cargo volumes saw a record increase beginning in April 2020 following a dramatic drop in import cargo volumes early in the COVID-19 pandemic. The Port of Los Angeles announced in June it had become the Western Hemisphere’s first port to process 10 million container units in a 12-month period.

That report blames equipment shortages, capacity limits, and logistical chokepoints throughout the entire supply chain for the backlog of container vessels and marine terminals slowing trade at West Coast ports.

With shipping backlogs and an ominously lopsided supply and demand equation, the stage is set for higher losses as the wildfire season throughout most of the West and California is off to a bad start.

Wildfire-Riddled West

As of early July, the number of fires in California had totaled 4,599, with 73,511 acres burned. That’s an increase of 752 fires and 42,400 acres from last year. The five-year average is 2,630 fires with 52,623 acres burned, according to CalFire.

California’s wildfire seasons now start earlier and end later. The Lava fire, an early summer blaze in the Northern part of the state, is now nearly 77% contained and has burned 26,203 acres.

The National Interagency Fire Center reports more than 1 million acres have burned across 12 states, while there are 68 active large fires. States reporting large fires include Idaho (14), Montana (12), Arizona (11), California (8), Alaska (6), Oregon (6) and Washington (5). So far this year, NIFC data shows 34,216 fires burning 2.2 million acres. That’s the most fires since 2011, and the most acreage burned since 2017 (4 million acres).

What this will do to insurance rates for people living in wildfire-prone areas is abundantly clear: insurance will continue to cost more, and become increasingly harder to get.

Consumer complaints about non-renewals to the California Department of Å˽ðÁ«´«Ã½Ó³»­ doubled statewide following 2018’s massive wildfires, though complaints about non-renewals fell slightly last year, according to the CDI.

The number of California homeowner policies that insurers declined to renew rose 31% to 235,250 in 2019 from 179,458 in 2018, while the number of policies issued through the FAIR plan rose to 190,196 from 140,138, according to a report by the California Department of Å˽ðÁ«´«Ã½Ó³»­.

The recent dip in consumer complaints over non-renewals followed California Å˽ðÁ«´«Ã½Ó³»­ Commissioner Ricardo Lara’s orders of renewal protections for more than 1 million policyholders in 2019 and 2.4 million in 2020.

A silver lining may have been a winding down of the pandemic, but the highly transmissible B.1.617.2 (Delta) variant of COVID continues to spread across the U.S. at a rapid pace as vaccination rates tumble, with the Centers for Disease Control’s seven-day moving average of reported cases rising from a low of below 12,000 in mid-June to over 24,000 this week.

Related:

• Wildfires Burning Homes, Land Across 10 States in West
• Heat Wave Blankets West as Wildfires Rage in Several States
• California Seeing More Wildfires So Far Than in Disastrous 2020

Topics Catastrophe Natural Disasters Carriers Wildfire Windstorm Homeowners COVID-19