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Oakland Fire Makes 1991 the Second-Worse Ever for Disasters, Insurers Say

October 22, 1991

LOS ANGELES (AP) _ The Oakland inferno makes 1991 the second-worst year for natural disasters endured by the insurance industry, exceeded only by 1989, the year of a destructive California earthquake and the Southeast’s Hurricane Hugo.

Experts such as Roger Tompkins, California vice president for State Farm Insurance Co., said Tuesday that the blaze would produce three or four times the insured losses of a disastrous fire in Santa Barbara last year.

″In my own mind, I’m sure it’s going to prove out to be the most expensive urban fire in modern times,″ Tompkins said.

Despite three years of huge disaster claims and complaints that California’s rate-cutting Proposition 103 is picking their pockets, property and casualty insurers are expected to remain in strong shape, thanks to large reserves and load-sharing with large reinsurers, which are insurers of insurance companies.

Those reinsurers include Lloyd’s of London and some Swiss and German companies as well as companies like General and American reinsurance here, said Alan Shirek, head of the risk management department at the San Francisco office of Alexander & Alexander, an international insurance broker.

Most U.S. insurers will be little hurt by the Oakland fire and are unlikely to raise premiums because of it, he said.

″In the personal insurance area, there’s so much competition that even this major catastrophe should affect rates in only a very marginal way,″ he said.

State Farm, California’s biggest insurer, estimated Tuesday that it would pay as much as $135 million in claims from the Oakland fire, compared with $36 million from the Santa Barbara blaze.

That sounds like a lot - but not compared with the company’s $18 billion ″policyholder protection fund″ of national loss reserves. Those reserves have been described as too large by industry critics such as Harvey Rosenfield, the author of the Proposition 103 premium-rollback reforms approved by California voters last November.

But Tompkins, State Farm’s California vice president, said disasters like the Oakland fire demonstrate why big reserves are desirable.

″When people want to challenge us on how much policyholder protection fund we have, we remind them that in cases like this, the customers want a check - they don’t want an IOU,″ he said.

Tompkins said other large insurers also have more than adequate reserves.

″Certainly among the top 20 companies in California in casualty insurance, I have no reason to believe any are anything other than adequately financed,″ he said.

Claims for catastrophic losses cost the industry $7.6 billion in 1989, when severe freeze damage in the Gulf states added to losses from the quake and hurricane. That record looks secure, said Ed Hermanson of American Insurance Services Group in New Jersey, which compiles insurance data.

The industry’s second worse year was 1990, which at $2.8 billion was just a hair above this year - until the Oakland firestorm.

″With the fire thrown in, this year’s going to be bigger,″ said Hermanson.

He said the fire was the 31st official catastrophe of 1991 by industry standards, meaning it caused at least $5 million in property damage and generated a significant number of claims.

Tompkins said State Farm, with about 20 percent of the business in Oakland, expects to receive 5,000 claims in all, from destroyed homes to bills for cleaning smoke-smudged drapes to hotel tabs from the displaced.

He said 1991 will probably become State Farm’s second-worst year for claims. Catastrophic losses were $1.16 billion in 1989 and $746 million last year. They totaled $524 million through August of this year.

By contrast, in none of the five years before 1989 did his company’s losses exceed $500 million.

The exact amount of claims won’t be known for some time. Bill Packer, a spokesman for the Association of California Insurance Cos., said the priority for most companies now is getting teams of adjusters into the burned area to reach policyholders.

Of course, not everyone was insured.

″We’re all so vulnerable,″ said Walter Nelson Rees, co-owner of an uninsured, $18 million collection of California paintings that was to begin touring museums next week.

″I couldn’t believe it,″ Rees said. ″Why did our house burn? We had a metal roof, insulation.″

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