Christopher Flavelle of The New York Times reports that the wildfires near Los Angeles could worsen California’s struggling insurance market. Flavelle writes:
It’s too soon to know the financial cost of the wildfires burning around Los Angeles. But the toll on California’s troubled insurance market could be enormous.
The fires struck just as California officials have been working to stop insurance companies from fleeing their state. That exodus, driven by rising losses from wildfires that have grown larger and more frequent, could accelerate because of this week’s fires, experts said.
“The California insurance market has been balanced on a knife edge,” said Nancy Watkins, an insurance expert and principal actuary at Milliman, a consulting firm. As homeowners begin filing claims, insurers that cover large numbers of dwellings in Southern California could see a drain on their financial reserves, forcing them to drop customers, be punished by investors or exit the state. […]
The Los Angeles fires pose another threat to California’s insurance industry, beyond the money those companies will have to pay directly to their customers.
In the areas hit by this week’s fires, many homes are insured through a state-backed system called the California FAIR Plan, designed to be a last resort for homeowners who cannot find insurance coverage on the private market. The plans are more expensive and provide less coverage than commercial versions.
The number of homes in the ZIP code affected by the Palisades fire that are enrolled in the FAIR Plan almost doubled between 2023 and 2024, said Tim Zawacki, an insurance sector strategist at S&P Global Market Intelligence.
If the FAIR Plan doesn’t have enough money to pay all the claims it faces, it collects funds from insurance companies operating in California. […]
Lost home insurance because of fire risk? Here’s What to Know – June 2024
The potential consequences are huge. Without insurance, banks won’t issue a mortgage; without a mortgage, most people can’t buy a home. Fewer buyers mean falling home prices, threatening the tax base of fire-prone communities. It’s a scenario that could come to define California, as rising temperatures and drier conditions caused by climate change intensify the risk of wildfires.
Read more here.
