Insurance carriers already face over 50 billion dollars in claims losses due to wildfires By Lonce Lamonte - January 15, 2025Estimates, so far, have put the damage to Southern California over the past week and a half from the wildfires at over 50 billion dollars.
The most hard hit has been Pacific Palisades, which has been called the Palisades fire. Then, next is the area of Altadena, which is just north of Pasadena and east of Eaton. It has been called the Eaton fire. These two areas are the worst fires.
Then there's the Kenneth fire near Calabasas, then the Hurst fire between San Fernando and Santa Clarita, and the Lidia fire near Magic Mountain.
The most devastating natural disaster in recent United States history has been Hurricane Katrina which caused damages costing over 200 billion dollars.
These new Southern California losses wll only exacerbate the billowing crisis that has already left thousands of Californias struggling to keep and to find affordable homeowners insurance. The Palisades fire alone is being called the most destructive hire to attack the city. Combined with fires across the county they are collectively likely to become one of the most expesive natural disasters in United States history.
These wildfires are in January. This shows what insurers have been stating that their risks have for atleast the past five years significa2ntly changed due to climate change.
State Farm announced early last year that it would not renew 72,000 property insurance policies. Chubb Insurance and its subsidiaries stopped writing new high-value homes with higher wildlife risk.
State Farm's decision came as thousands of Californians were finding it extremely difficult to insure their home and commercial properties.
Now this situation for policy holders and seekers is only going to get significantly worse. Companies have cited increased inflation and reinsurance costs as well as increased wildfire risk, plus other catastrophy exposures as reasons for scaling back. The limitations of decades old insurance regulations were also cited as reasons.
State Farm reported net losses of $6.7 billion in 2022 and $6.3 billion in 2023.
Now, thousands of Californians are purchasing insurance from the FAIR Plan as a last resort. Funded by insurers doing business in California, the Fair Access to Insurance Requirement plan provides coverage that's more limited, and is a catch-all for property owners unable to find policies they can afford.
But the enrollment surge is putting a financial strain on the state insurer. It faces, as of last year, a potential loss which could have already become an actual loss of $311 billion up from $50 billion in 2018.
The insurer of last resort sounds similar to State Compensation Insurance Fund (SCIF) which is a quasi-state agency for businesses that can't find workers' compensation insurancee in California with any of the private insurers. So, for workers' compensation insurance in California, SCIF is the insurer of last resort. But it does not offer coverage that's more limited, but equal.
An assembly member, Jim Wood, a Democrat from Sonoma County, said last March of 2024, "We're one bad fire season away from complete insolvency. It feels like a big gamble in many ways."
California Insurance Commissioner Ricardo Lara has propose new rules that would let insurers raise rates to cover reinsurance costs and projected losses from catastrophic fires, but also require they provide coverage for more properties in the hills and canyons. These proposals aim to slow the increase in premiums and move pepe off the FAIR plan.
State Farm said it would continue to work with Ricardo Lara and the California Department of Insurance, the governor's office, and policy makers to pursue the reforms and make an environment with insurance rates better aligned with risk.
The L.A. Times in an article of March 23, 2024 stated an insurance expert, Karl Susman, said the California Department of Insurance had to push ahead the new regulations much faster to stop companies from leaving the state.
"Even if it works out perfectly, you're looking at every carrier having to now submit their new plans based on new rates and get them approved, and then they have to program them in their systems, then they have to roll it out to their clients and then they have to wait a year to get premiums based on those rates," the L.A. Times quoted Karl Susman as saying. "We're talking about a long runway before these regulations will start having an impact."
It's not clear how many homeowners in Pacific Palisades and elsewhere may not have coverage. Some homeowners reported that insurers had not renewed their policies before the wildfires burst forth on January 7th. Actor James Woods, who lost his home in the Palisades fire, tweeted that "one of the major insurance companies cancelled all the policies in our neighborhood about four months ago."
Lonce Lamonte, journalist, adjustercom, lonce@adjustercom.com,www.adjustercom.com; copyright by Lonce Lamonte and adjustercom, all rights reserved.
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