The horrific Los Angeles fires are still burning – but the damage estimates have already begun.
Weather forecaster AccuWeather is getting buzz – and derision – for its lofty tally of the firestorm’s economic hit: $250 billion to $275 billion. This projection is easily twice as high as other estimates.
“Thousands of people are in desperate need of help, initially the basic and life-sustaining needs of food, water and shelter, as this tragedy unfolds,” Jonathan Porter, AccuWeather’s chief meteorologist, was quoted in a Jan. 13 press release. “Many families will face significant unexpected costs to relocate to another area in Southern California. The recovery process will be extremely expensive and emotionally challenging in the months and years to come.”
Two local economists scoffed at AccuWeather’s numbers.
“Their loss estimates are about as good as their weather forecasts,” said Chris Thornberg of Beacon Economics, citing a page from the weather service’s website calling for minimal winds in Los Angeles on what others feared would be a gusty day. “It’s all about catastrophism.”
Thornburg estimates wildfires will damage 12,000 structures, costing $3 million each to fix. That’s about $36 billion.
Then he adds in fire-related expenses, such as fighting the fires, environmental clean-up, relocations and infrastructure repairs. Thus, the economist thinks damages will be “probably a bit less than $100 billion. So, a mid-sized hurricane.”
“I think that AccuWeather needs to stay in their lane,” said Mark Schniepp of The California Forecast, who thinks it’s way too early for credible estimates.
“In past fires, I’ve experienced wild exaggerations of the number of structures destroyed daily while the fires still raged,” he added.
Rough guess
Disaster math isn’t just an academic exercise.
Damage estimates help governments budget for disaster cleanup. It assists the local business community in understanding how their economic prospects may change. Also, insurance companies and their investors must know their exposure to reconstruction costs.
Plus, this data gives the public perspective on the scale of any disaster in very tangible terms: Who lost a home?
But how accurate can any damage estimate be when the flames aren’t even snuffed out?
Consider a key number driving these estimates: damaged or destroyed structures. One source of those numbers, Cal Fire, admits its initial estimates are rough guesses.
“These numbers are preliminary based on aerial assessments dedicating heat sources which can include chicken coops, outbuildings, sheds, water containers, fifth wheels, etc.” Cal Fire said. The estimates are then “ground-verified by damage assessment teams.”
As of Jan. 15, Cal Fire preliminary reports listed more than 12,000 L.A. structures involved, but its verification had so far found 6,818 structures destroyed and 883 damaged.
Not every analyst rushes out a number. Ponder the more reserved tones of other damage trackers on the LA fires.
Corporate credit watcher Moody’s wrote on Jan. 10: “While it is too early to assess insured losses in detail from the Los Angeles wildfires, it’s already clear that this is a major insured and economic loss.”
Real estate tracker CoreLogic had equally reserved thoughts on Jan. 13 when it estimated 16,636 properties in the path of the fires that would cost $13 billion to rebuild.
“Not all properties within the fire perimeter are necessarily damaged by fire,” CoreLogic wrote. “Additionally, properties that are impacted may not have sustained damage equal to their full reconstruction cost value.”
And this damage gap isn’t new. Go back to 2017, when a horrific series of fires burnt California’s wine region. Insurance broker Aon Benfield estimated $13 billion in economic losses, while AccuWeather saw $85 million.
Double trouble
Los Angeles isn’t the first climate disaster in which AccuWeather’s damage estimates run high.
Last fall, the Southeastern U.S. was hammered by two massive hurricanes, Helene and Milton.
Again, AccuWeather’s damage estimates were generous, ranging from $385 billion to $430 billion for the combined economic losses.
Compare those guesses to CoreLogic estimates of total structural damage — $52 billion to $82 billion. Or Moody’s projected insurance claims of $35 billion and $55 billion.
Bottom line
Parsing financial industry loss estimates against AccuWeather’s holistic math may be a case of apples to oranges – where AccuWeather counts every fruit and vegetable.
AccuWeather is proud its cost estimates are far above other’s projections. It claims it’s accounting for a slew of broadly defined disaster-related costs that others ignore.
“The damage and suffering from hurricanes and extreme weather are often much greater than what is initially reported and what insurance typically covers,” AccuWeather founder Joel Myers wrote in a 2024 weather-damage wrap-up. “The long-term effects of weather disasters are harmful to longevity. People experience trauma, they lose their possessions, they end up with less money to rebuild, pay for health expenses and eventually retire.”
I applaud AccuWeather’s message: Disaster fallout is more than the expense of repairs and dislocations. Emotional pain and resulting health issues are real.
But then there’s another harsh truth, too. One that I’ll admit overlooks the suffering of the victims.
Disaster economics frequently ignores humanity. Look, at least 25 died in the Los Angeles fires. Try to enumerate that loss.
Still, the financial bottom line is that cleanup, reconstruction, and relocations – whether paid by insurers, government or citizens – can boost the afflicted area’s business climate.
As economist Thornberg, citing years of forecasting disaster scenarios, put it: “With few exceptions, such episodes are characterized by a temporary dip in employment and consumption, followed by a surge in economic activity fueled by recovery spending.”
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com