The devastating fires tearing through Los Angeles are poised to become the costliest in US history – and they’re fueling an existential insurance crisis in California that raises questions how millions of homeowners will secure coverage against future disasters.
AccuWeather late Thursday raised its estimate for damages from the LA fires to between $135 billion and $150 billion – triple the costs initially expected – after blazes ripped through some of Los Angeles County’s wealthiest neighborhoods.
JP Morgan analysts predicted insured losses of $20 billion — and estimated that uninsured losses could soar to well over $100 billion. That would make the LA fires the most expensive in US history — equal to nearly 4% of California’s annual GDP.
“This will probably be the largest number of people uninsured or underinsured during a massive catastrophic event like this,” Diane Delaney, executive director of Private Risk Management Association, told The Post.
“The point of insurance is to be there at the time of claim, and if that’s going to bankrupt them, they’re going to pull out of the state,” Delaney added.
Shares of insurance firms with exposure to California – including Allstate, the Travelers Companies, Chubb, Mercury and American International Group – plunged on Friday. Mercury suffered the worst loss – with shares dropping more than 20% by late Friday afternoon.
California, unlike most other states, for years did not allow insurers to factor in weather risks when setting their rates – making it unusually risky for insurance companies.
Meanwhile, the Golden State has only become more prone to wildfires, earthquakes, floods and droughts over time, causing many insurers to flee.
In 2023, State Farm said it would no longer accept new applications for homeowners’ insurance due to the risk of catastrophes. Last year, the company said it would end coverage for 72,000 homes and apartments in the state.
“Our number one priority right now is the safety of our customers, agents and employees impacted by the fires and assisting our customers in the midst of this tragedy,” State Farm told The Post in a statement.
In 2023, seven of the top 12 insurance companies doing business in California paused or restricted new applications in the state, according to the Associated Press.
California has started to take steps to mitigate the crisis. Just last month, it ordered insurance companies to increase their coverage of high-risk regions while allowing them to pass those costs on to customers.
But when it comes to the wildfires devastating Los Angeles this week, those changes were too little, too late.
“They’re [insurers] going to predict how often a wildfire can happen, how much do we have to lose, to help determine their rates,” Delaney told The Post. “And the fact that they couldn’t do that before is going to cause them to run.”
Celebrities like Paris Hilton, Anna Faris and Leighton Meester and Adam Brody have confirmed their homes were destroyed in the LA fires.
Some high net-worth clientele have taken drastic measures to protect their properties – sinking $1 million into large water tanks or fire suppression systems to make up for inadequate insurance packages, according to Delaney.
Others have purchased goats to graze the brush around the edges of their house – or even acquired a fire truck to keep parked on their property.
The destruction of homes, schools, businesses and infrastructure, the long-term cost of rebuilding and relocating, cleanup and recovery costs, emergency shelter and health care are piling up, according to AccuWeather.
Add to that housing displacement and lost wages for thousands across Southern California whose jobs have been impacted by business closures. Any surviving property will likely have suffered fire and water damage, further raising costs.
“Hurricane-force winds sent flames ripping through neighborhoods filled with multi-million-dollar homes,” AccuWeather Chief Meteorologist Jonathan Porter said. “Many families may not be able to afford to rebuild or repair and return. Businesses may not be able to recover and jobs will be permanently lost.”
The Camp Fire in 2018 was previously the deadliest and most destructive wildfire in California’s history – causing about $16.5 billion in damages. The 2020 wildfires – which wreaked havoc across California, Oregon, Colorado, Montana, Washington and Wyoming – cost between $130 billion and $150 billion.
The cost to California in those fires was $19 billion.
California is facing more extreme fire risks early next week as Santa Ana winds are expected to pick up, according to AccuWeather experts. LA officials are still investigating the cause of the LA fires.
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