(Bloomberg) — Zurich Insurance Group AG and State Farm Mutual Automobile Insurance Co. are among companies facing losses from a Colorado wildfire that has already destroyed 346 houses and consumed 29 square miles.

The Waldo Canyon fire near Colorado Springs, which began June 23, has left one person dead and forced 34,000 evacuees to seek shelter, officials said. Record-breaking heat, drought and high winds coupled with the fire’s proximity to residences in Colorado’s second-largest city have made both homeowners and insurers vulnerable to costlier damage.

“It went from a forest fire to a city fire,” Carole Walker, executive director at the Rocky Mountain Insurance Information Association, said today in a telephone interview. “Now, this recipe for disaster is playing itself out.”

Policy-holder owned State Farm, the biggest U.S. home and car insurer that leads in market share in Colorado, has received 75 claims from the Waldo Canyon fire and expects that number to rise, said Angela Thorpe, a spokeswoman for the Bloomington, Illinois-based firm. Farmers Insurance Group, a Zurich subsidiary with the state’s second-largest share, has received 665 fire-related claims, according to Jerry Davies, a spokesman for the Los Angeles-based insurer.

Smoke and ash damage to homes and vehicles has the potential to cause additional losses, Walker said. She was unable to estimate losses because she and many insurers haven’t yet been given access to the area.

Still Threatened

More than 20,000 homes and 160 businesses remain threatened from the Waldo Canyon fire, and the cost for battling the blaze so far is $5.2 million, according to the Incident Information System, a multiagency coordinating group.

President Barack Obama toured Colorado Springs today and said he was stunned at the fire’s devastation. “We’ve still got a ways to go” before the flames are out, he told reporters. “We need a little help from Mother Nature.”

The origin of the blaze is under investigation. Drought and winds have fueled fires across the western U.S., including Idaho, Montana and New Mexico. In Colorado, at least nine fires have charred about 240 square miles, fire officials said.

Homeowners insurance covers the cost of rebuilding a house if it’s damaged or destroyed by fire, according to the Insurance Information Institute. Reimbursement for personal property loss is typically 50 percent to 70 percent of the amount of coverage on the structure, the institute said. Hotel bills, meals and other living expenses are also covered if the house is uninhabitable.

Last year, catastrophic wildfires caused $855 million in insured losses and $1.9 billion in total economic losses, according to Munich Re, the world’s biggest reinsurer. Among the costliest U.S. wildfires were those that swept California in October 2007, which caused more than $2 billion in insured losses, according to the state’s insurance regulator.

(With assistance from Jennifer Oldham in Denver, Amanda J. Crawford in Phoenix and Roger Runningen in Washington. Editors: Steven Crabill, Dan Kraut)

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