As firefighters work hard to extinguish a roaring blaze that forced thousands of people to evacuate their homes, property and casualty insurance companies face mounting economic damage from the most destructive firestorm in Los Angeles history. It could be devastating to the market and the California homeowners who depend on it.
The impact of the devastating wildfires could cause already high insurance premiums to soar, leading to a new wave of private insurers terminating policies or refusing to accept new ones, not just in the Los Angeles area. There is.
“Insurance is going to be harder to come by and the premiums are going to be incredibly higher than they are today. People need to be prepared for that,” said Mark Newman, president and owner of Mark Newman Kusel Agency in Los Angeles. At least six customers have lost their homes so far, Kuzel said, and more have called to confirm. About their insurance coverage. “What I like to tell my clients during their annual insurance review is that they are lucky they didn’t get cancelled.”
Economic losses are already estimated at more than $135 billion, and consumer advocates say the state’s insurance company, the FAIR Plan, which is a last resort for many homeowners, is running out of money to operate across the state. The government warned that it may be forced to withdraw funds from private insurance companies that are currently in charge and recover the funds. Losses are occurring, making it even more difficult for homeowners to find affordable coverage.
“We are very concerned about how this situation will impact future availability and affordability,” said Amy Buck, executive director of consumer advocacy group United Policyholders. said.
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How will wildfires impact California’s insurance market?
After severe wildfires in 2017 and 2018 took a toll on profits, insurance companies are pulling out of California and homeowners are struggling to find affordable insurance. More than 100,000 Californians lost insurance between 2019 and 2024, a San Francisco Chronicle analysis of insurance data found. More than 1,600 policies were canceled by State Farm for homeowners in Pacific Palisades, one of the areas affected by the fires last summer.
“The industry is still recovering from the wildfires of 2017 and 2018 and will still be recovering in early 2025,” said Tim Zawacki, principal research analyst for insurance at S&P Global Market Intelligence. ” he said. “The wounds are pretty deep and the industry will continue to look at this market very carefully.”
The California insurance market was booming heading into 2025. Last month, the California Department of Insurance announced new regulations aimed at persuading insurers to acquire new customers in high-risk areas, allowing them to pass reinsurance costs onto customers and take advantage of wildfire catastrophe modeling. I did it like that. To raise interest rates.
Janet Lewis, a spokeswoman for the California-based Insurance Information Institute, said the new rules should lead to a “more competitive insurance market.” Farmers Insurance last month announced plans to expand coverage in the state.
But the new regulations may not be enough to convince insurance companies to stay in California, especially after this week’s deadly wildfires that destroyed more than 9,000 structures as of Thursday night. There are also voices.
In addition to high insurance payouts, “the visual images of destruction are likely to haunt executives and dampen the renewed enthusiasm for (California’s) home insurance that they had hoped reform would bring,” Bach said. he said.
AccuWeather experts estimate that the total damage and economic loss will be between $135 billion and $150 billion, with Chief Meteorologist Jonathan Porter saying Thursday that “the wind-induced hell is a It caused one of the costliest wildfire disasters in history.”
JPMorgan’s report said the “vast majority” of losses are expected to be concentrated in homeowners insurance, with both primary insurers and reinsurers experiencing “substantial losses.”
“We are facing a real crisis,” said David Russell, a professor of insurance and finance at California State University. “The Secretary’s Office will have to approve these rate hikes, otherwise the availability problem will become even more acute.”
Denny Ritter, vice president of state government relations at the Property Casualty Insurance Association of America, a national trade group for insurance companies, said it’s too early to speculate on the impact the wildfires will have on the market.
“Recent reforms to stabilize California’s insurance market are important but have not yet been finalized or implemented,” Ritter said.
Some are downplaying the impact of the recent wildfires on insurance companies’ presence in the state.
“The insurance industry understands that catastrophes and wildfires happen, and the plans we have created through this sustainable insurance strategy take all of that into account,” said Lewis of the Insurance Information Institute. says. “One catastrophe doesn’t necessarily change what we already have in place.”
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What does this mean for California’s FAIR plan?
In recent years, more and more homeowners have turned to FAIR Plans, California’s last insurance provider. The insurer has high premiums and limited coverage, but its user base is rapidly growing as homeowners struggle to find coverage on the private market.
As economic losses from wildfires continue to mount, the FAIR plan would require funding from primary insurance companies operating in the state, raising concerns that more insurers may leave the state. There are concerns.
“When you have to bail out another insurance company as a private insurance company, you start thinking about whether it’s attractive to be in that space,” Russell said. “This is an off-cycle series of claims. If the FAIR plan is already underwater, what will happen when we return to the summer and fall fire seasons?”
The total amount of real estate insured under FAIR plans was more than $458 billion as of September, up from $153 billion in 2020, according to the insurer’s website. Pacific Palisades is home to approximately $6 billion worth of assets.
“We’re one event away from the big review, but there’s no other way to say it because we don’t have a lot of funding and we have a lot of exposure,” said Victoria Roach, California FAIR Plan Chair. he said. at a state hearing in March.
Although it is too early to estimate the cost of losses from the recent fires, spokeswoman Hilary McLean said the FAIR plan has “payment mechanisms, including reinsurance, to ensure that all eligible claims are paid. It’s well maintained,” he said.
The company has become “an important insurance option” for many Californians, said Michael DeLong, research and advocacy director for the Consumer Federation of America, a consumer advocacy group.
“We may need more funding. We may need additional support. But without it, California homeowners will be in a much worse situation,” DeLong said.
(This article has been updated with additional information.)
