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1 1 (January 30, 2008)

handle is hein.crs/crsajql0001 and id is 1 raw text is: Order Code RS22747 Updated January 30, 2008 California Wildfires: The Role of Disaster Insurance Rawle 0. King Analyst in Financial Economics and Risk Assessment Government and Finance Division Summary The tragic consequences of the wildfires that struck southern California in late October 2007, have given renewed attention to the partnership between private providers of disaster insurance and the federal government. In broad terms, the disruption to economic systems caused by natural disasters, such as wildfires, windstorms, earthquakes, and floods, have been handled by the insurance and reinsurance industries and by the federal government (taxpayers). Consequently, large government outlays for disaster assistance and higher premiums for disaster insurance and reinsurance have followed the devastation caused by natural and man-made disasters. While it is too early to determine the full impact of the 2007 California wildfires on state and national property insurance markets, early estimates of $1 billion in insured property losses suggest this event will not exceed the most destructive fire in the state's history - the 1991 Oakland fires that cost $2.5 billion in 2006 dollars. The scope of the losses is well within the demonstrated capacity of the private insurance and reinsurance markets. Generally speaking, losses from wildfires have been a manageable risk in the private insurance market. Insurance coverage has been widely available both in the standard insurance market and in residual or involuntary markets established through state legislation in the early 1970s to assure markets for risks not always available or affordable in the standard market. In California, applicants for fire coverage under the Fair Access to Insurance Requirement (FAIR) plan must live in areas of the state specifically designated by the insurance commissioner. Assistance for uninsured losses is being met through standing authorities; the need for additional federal legislation is not yet known. Federal costs to cover uninsured losses associated with the wildfires in California may require supplemental appropriations. Some may also argue that pending legislation (H.R. 3355/S. 2310, the Homeowners' Defense Act of 2007) would provide a federal backstop for state-sponsored insurance programs to help homeowners prepare for and recover from the damages caused by natural catastrophes such as the wildfires. This report will be updated as developments warrant.

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