Oregon will likely file a claim on its one-of-a-kind wildfire insurance policy with Lloyd's of London.
"It looks like it is going to pencil-out to about a $19 million claim," said Jim Gersbach, spokesman for the Oregon Department of Forestry.
The policy with the 335-year-old British risk insurance pool will help pay for fighting fires that burned 225,007 acres of the 16 million acres protected by ODF.
ODF has purchased the insurance since 1973 as a hedge against firefighting costs that could overwhelm the budget of a heavily forested state with limited resources to battle major blazes.
The last district in Oregon declared the fire season over on Oct. 22. While the insurance coverage runs from April to April, Gersbach said all but a fraction of fires and costs occur between late spring and mid-autumn.
ODF calculates its 2021 spending on fire suppression at just under $129. 2 million. After federal aid and other reimbursements, the net amount projects at just under $69 million.
Under its policy with Lloyd's, the state covers the first $50 million in costs — a kind of insurance deductible.
Above $50 million, Lloyd's covers the next $25 million.
If costs are above $75 million, the bill reverts to the state.
But when costs get that high, the fires are reaching the level of a catastrophic disaster, which is what happened in 2020.
The 2020 Labor Day fires burned over 1 million acres in the state, destroyed 4,000 homes, killed 11 people and required 40,000 people to evacuate their homes. Winds driving fires down the western face of the Cascades sped along river valleys, reaching the outer suburbs of Portland, Salem, Eugene and Roseburg. A fast-moving fire north of Ashland destroyed swaths of the towns of Talent and Phoenix.
In all, fires in 2020 burned 1.14 million acres in Oregon, including 399,670 acres of lands protected by ODF.
But the scale of the fires brought a torrent of federal disaster aid.
ODF's final cost of the 2020 wildfires was about $130 million. But the bill was offset by more than $70 million in federal disaster aid, along with additional aid and fees paid to ODF.
That pushed the net fire costs to ODF in 2020 below $50 million. There would be no call to Lloyd's of London.
"In the end, we did not have to file a claim," Gersbach said.
Oregon currently pays $4,131,871 per year for the policy. The cost is split between the state and private timberland owners. Landowners pay their share through a property tax formula.
Gersbach said over more than four decades, the state has received $99 million in claims payments from Lloyd's, while paying $75 million in premiums. ODF last filed claims in 2013 for $25 million and 2014 for $23.2 million
The current policy runs through April 15, 2022. Lloyd's of London carries just over 90% of the policy, with Nashville-based Acceptance Insurance carrying the remainder.
During the winter, ODF and Lloyd's of London will negotiate a new policy and premium, which has to be approved by the legislature and Gov. Kate Brown.
The number and size of fires has grown in the past decade. But the state has expanded its fire prevention and firefighting capabilities. Both factors will affect the cost of a new policy.
A one-of-a-kind insurance policy is not unusual for Lloyd's of London. It began in 1686 as a company selling shipping insurance from a table at the back of a coffeehouse near the Thames River in central London.
Since a 1871 Act of Parliament, Lloyd's has transformed into a risk pool. Today, Lloyd's of London has about 90 members — companies, investment funds and a few individuals.
Policy payouts are drawn from a risk pool of about $48 billion. The wide spread of risk enables Lloyd's to mute the impact of costs on any one member.
The profits are also shared, with members reaping the benefit of premiums paid on the majority of policies that are not activated in any given year.
Lloyd's still sells shipping insurance and is based in the same neighborhood as the coffeehouse.
Most of its worldwide business is transacted online, but Lloyd's gives a nod to its past by maintaining an underwriting room in London, with a soaring 197-foot high atrium.
Over the decades and centuries, Lloyd's has branched out into nearly every corner of the insurance market, including some highly-publicized oddball policies that have made the company's name known around the world. It's insured everything from 1940s actress Betty Grable's legs to Rolling Stones guitarist Keith Richards' hands.
In most years, Lloyd's turns a strong profit for its members. But the COVID-19 pandemic has made for two extraordinarily challenging years. Coronavirus-related policy payouts topped $8.5 billion in 2020, the most of any single event in Lloyd's long history.
Insurance policies are based on calculations of likely risk drawn from decades, even centuries of actuarial statistics. But the COVID-19 was a "black swan" — a term for a rare, unseen disaster of epic magnitude.
The pandemic flooded Lloyd's with claims, leading the pool's investors to absorb a $1.24 billion loss in 2020. But Lloyd's doesn't just sell insurance, it also buys it. The Lloyd's investors limit their ultimate financial exposure by purchasing annual "reinsurance" policies that kick-in when costs escalate above a specific rate or level.
While ODF will have to wait until it meets with Lloyd's to discuss terms of the next policy, Gersbach said the state hopes to mark the 50th anniversary in 2023 of the state's "prudent relationship" with Lloyd's of London.