Risk Strategies’ Clinkscales: ALE emerging as major HNW loss driver in CA wildfires

By Mia MacGregor

Jan 23 - (The Insurer) - Additional living expenses (ALE) are likely to emerge as one the largest drivers of high-net-worth (HNW) claims following January's California wildfires, according to Jeff Clinkscales, senior vice president and West region private client services leader at Risk Strategies.

Clinkscales said the broad scale of the wildfires, which have burned more than 57,600 acres as of 4 February, means ALE costs are "going to be tremendous".

"There's only so much capacity for people to stay elsewhere, right? And it stands to reason, simple economics, that when there's a shortage, the price goes up, which we're already hearing a lot of reports about," he said.

"So that's probably, apart from physical property in and of itself, the biggest driver."

In addition to ALE, Clinkscales said auto losses will likely be another significant driver of losses.

"I think one of the understated items is going to be auto. There's a tremendous amount of auto losses that are occurring, and this falls within property."

He also highlighted damage to primary and secondary structures on properties, as well as a "tremendous uptick in concern over the loss of fine arts and jewellery".

These fine art and jewellery losses will being unique challenges, according to Simon Codrington, managing director at Risk Strategies.

"I've had three reports of significant potential jewellery losses, but they don't even know what they are yet, because they're in safes, and those safes are now somewhere in the basement, which may or may not be okay," he said.

Codrington said concerns around looting have further complicated the situation.

"We're not overly publicising it, because that'll increase the prospect of looters going through these houses looking for safes. I don't think I've ever encountered numerous safes in basements before in my career, and this is unprecedented in that respect."

Codrington also highlighted the importance of a highly individualised approach when insuring HNW clients.

"These people have unique items, which often need unique insurance solutions, and the HNW area, especially the fine art area, is not just a cookie-cutter response to anything.”

HNW individuals are a key focus within Risk Strategies' private client services segment.

The private client services team provides coverage for a wide range of needs, including primary and secondary homes, co-ops and condos, collector, classic and exotic vehicles, fine art, jewellery, wine, antiques, personal excess liability, boats and yachts, equine liability and mortality, private aircraft, aviation risks, and more.

“It's actually about finding individualised solutions for each client's needs. And that's a really different thing compared to other parts of the marketplace," Codrington added.

Widespread underinsurance not expected for high-value homes

Clinkscales addressed concerns about underinsurance for high-value homes affected by the fires, explaining that a specific class of carrier has an appetite for such properties and offers contracts very different from most insurers in the market.

He added that the silver lining for many high-value homes affected by the fires is that they were insured by these specialised carriers.

"So, I think if there's one silver lining to this in terms of insurance, it's that a lot of those homes were insured with carriers in that class. These carriers essentially have the broadest insurance contract available in the US, and they offer guaranteed replacement cost in a lot of cases,” he explained.

He emphasised that because of how these carriers underwrite policies and the specific contract language, "it's very uncommon to see significant underinsurance for property with these carriers. They validate values when they write the policy, continue to validate them, and embed them into the contract."

He added that this contract language essentially prevents insurers from lowballing claims or leaving clients underinsured.

However, Clinkscales anticipates that underinsurance will be an issue for homes insured by carriers without these broad contracts.

"What you're going to see, and I can anticipate this with a lot of certainty, is a fair amount of underinsurance with carriers that do not have those same practices, that do not have contracts that are that broad,” he said.

Key takeaways

Clinkscales shared that his biggest takeaway from the wildfires is the inevitability of such events: "We have no reason to believe that these events will cease or not continue to occur, and it's our job to anticipate those as best we can and to educate our clients and the general public on what they can do to insulate their net worth and assets if they do."

Codrington said his key takeaway revolves around the importance of evacuation planning in risk management: "In the fine art arena, the focus has traditionally been on earthquakes, which ironically worked against us here, as everything was bolted down and harder to move. Now, the conversation is shifting to building rapid evacuation plans for flood, fire, or other perils, to minimise potential losses quickly."