"I’m hearing crazy numbers," David Sterling, CEO of SterlingRisk, an insurance brokerage firm that helps high-net individuals, including celebrities, increase their coverage, tells Parade. "I’m hearing in the hundreds of billions is the potential loss right now." That's an unconfirmed estimate—"literally and figuratively, the smoke has not cleared yet," Sterling stresses. "But no matter how you look at it, this is going to be one of the most costly catastrophes in insurance history."
Breaking the loss down by house, Sterling explains that many of the affected homes cost between $1,000 and $2,000 per square foot to build, and many of them are roughly 10,000-to-20,000 square feet in size. "So that puts the values at 10-to-40 million in some of these homes," he says. "And that’s just the house, that’s not even including the contents."
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"These wildfires, while horrific and probably the worst we’ve seen, are not a new story," Sterling says. "They've been happening nonstop over the last five or 10 years." As a result, he says, insurance companies have been "rating addresses and neighborhoods with a score of how vulnerable they are to wildfire, and if you have a high wildfire score, you’re going to find it very difficult to find insurance."
The problem with the California FAIR Plan, Sterling says, is that it doesn't pay out a home's replacement cost—it pays out its replacement cost less the depreciation cost. "A 10-or-15-year-old home will have significant depreciation," he says. "So there’s a lot of concern that a number of the victims here are going to be challenged. First they’re suffering the tragedy of losing everything they own, and then the next step will be the business negotiation of what they’re going to get paid from their insurers. It’s clear to me that a significant number of those people affected will have lost more than they’re going to be able to claim."
"If that happens, insurance will rush into California like a flood," he says. "Because insurers want to write business; they just don’t want to write business when it’s a sure loser."
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