Chile wildfires 2024: analysis of the impact on the insurance and reinsurance sectors

February 28, 2024

First official data released on Chile wildfires’ impact on insurance sector

In the wake of massive fires sweeping across Chile, devastating over 18,000 hectares of land from late January to early February, the country’s insurance and reinsurance market is now grappling with the aftermath.

The Valparaiso region bore the brunt of this catastrophe, with 8,600 hectares of forests, businesses, universities, and homes destroyed, leading to significant human and structural losses.

The focal point of the fires has recently shifted towards Chile’s center-south, posing a new threat to the agricultural and forestry industries.

The Financial Markets Commission of Chile, incorporating the insurance regulator, disclosed on February 26, 2024, the initial comprehensive data concerning the fires.

As of February 20, a total of 1,055 non-life losses had been reported.

Property policies constituted 64% of these claims, while auto claims accounted for 30%, with the majority (72%) being filed in Viña del Mar.

Although it’s still early to fully assess the damage, the estimated exposure in the hardest-hit municipalities—Viña del Mar, Quilpé, Villa Alemana, and Limache—is around USD 120 million.

Insurance regulator’s response to wildfire damages

In response to the structural and human damages inflicted by the fires, the Chilean insurance regulator has taken proactive measures to ensure the swift processing and payment of claims.

The Commission is actively present in the affected areas, educating individuals on their rights as insureds.

Local insurance markets have been directed to enhance customer support channels and ensure the rapid processing and payment of claims.

Insurers are also required to furnish detailed information regarding their exposure in the affected areas, the total cost of all related claims to date, and the impact of these claims on their operations.

Despite the reduced impact compared to initial projections, the insurance market faces several challenges in addressing the consequences of the fires.

The investigation into arson as a potential cause by Chilean authorities may lead to exclusions in some claims.

The market will need to identify the full extent of affected assets and triggered policies, and determine the coverage scope for each event, taking into account 72-hour clauses.

Challenges and adjustments in the wake of the wildfires

The insurance and reinsurance sectors must navigate numerous challenges in the aftermath of the Chile wildfires.

These include determining whether business interruption claims are valid in cases without physical damage to insured assets, and managing force majeure and related exclusions in liability claims.

The origin and cause of the fires will need to be investigated in certain cases, and claims for vehicles damaged while at repair shops will also require consideration.

Reinsurers, in particular, must adjust to Chile’s claims adjustment regulatory framework, which demands neutrality from adjusters and adherence to statutory timeframes for claims handling and payment.

Compliance with local legal definitions of relevant events, such as arson and terrorism, is also crucial.

FSJA Comment

The Chile wildfires of 2024 have underscored the critical importance of the insurance and reinsurance market’s role in disaster recovery.

The swift response by the Chilean insurance regulator, aimed at facilitating rapid claim processing and payments, reflects a commitment to supporting impacted individuals and businesses.

However, the challenges ahead, including the potential for claim exclusions due to arson investigations and the need for precise determination of covered events, highlight the complex interplay between legal, regulatory, and market forces in the aftermath of natural disasters.

As the situation unfolds, the resilience and adaptability of the insurance sector will be key in mitigating the financial and operational impacts of these devastating fires.

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