L.A. Wildfires Lay Bare an Insurance Crisis
Even before the latest blazes, California officials warned that an emergency state insurance fund was in trouble, while private insurers dropped coverage.
By
Andrew Ross SorkinRavi MattuBernhard WarnerSarah KesslerMichael J. de la MercedLauren Hirsch and
Benjamin Weiser
Jan. 10, 2025, 7:43 a.m. ET
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Costs from the Los Angeles-area wildfires could reach $150 billion, according to new estimates.Credit...Loren Elliott for The New York Times
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The ferocious wildfires that have burned throughout the Los Angeles area
continued to rage overnight, consuming an area twice the size of Manhattan. Forecasters expected “critical red flag” conditions to continue on Friday before the hurricane-force winds that have fueled the blazes subside in the afternoon.
The devastation has more people asking one hard question: Has this part of California become uninsurable?
The latest: At least 10 people have died and roughly
180,000 have been forced to evacuate, as firefighters take on six major blazes and remain on high alert for others. Thousands of homes and businesses, including whole neighborhoods in affluent communities such as
Pacific Palisades and Malibu, have burned to the ground.
AccuWeather, the private forecaster, tripled its estimates of the fires’ total economic damage and losses to
as much as $150 billion.
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“We are absolutely not out of this extreme weather event,” Kristin Crowley, the Los Angeles fire chief, said last night. Even for a region accustomed to destructive natural calamities, this one seems seared in the collective conscience. The Pacific Palisades area has been described as “
a ghost town.” Across the region, the afflicted include everyday Angelenos and
Hollywood celebrities.
“We think these could be among the most expensive wildfires in U.S. history,” Scott Heleniak, an analyst at RBC Capital Markets, wrote in a research note on Thursday, estimating that insured losses could top $20 billion. The previous record was the 2018 Camp fire in Northern California, where
losses hit $12.5 billion.
One group that appears to have been spared so far:
holders of catastrophe bonds, which have largely held their value even as local insurance losses mount. With climate disasters on the rise, insurers have increasingly sold these instruments to investors to manage risk.
Insurers, homeowners and businesses aren’t so lucky. Even before this winter’s wildfire season arrived, officials in the region had warned that the California FAIR plan, a state-run insurer of last resort that has increasingly become a main source of coverage for residents, was “
one bad fire season away from complete insolvency.”
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The FAIR plan’s exposure soared by 61 percent year-on-year to $458 billion by the end of September, according to RBC’s Heleniak. Driving that is the flight of insurers from the California market: Between 2020 through 2022 — during which more than 23,000 wildfires raged across the state, according to data from state officials — private insurers dropped coverage for 2.8 million home insurance customers, Heleniak wrote.
One problem for insurers and Californians: Unlike hurricanes, wildfires are harder to model, ratcheting up the risk. (That said, losses from hurricanes tend to outstrip those of wildfires, analysts note.)
California is hardly alone. Climate-related extreme weather events, including hurricanes and tornadoes, are pushing up premiums around the country and insurers are still
losing money in many states.
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As Dave Jones, a former insurance commissioner of California,
told Time: “We are marching steadily towards an uninsurable future in this country.”
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