Insurers face up to $20 billion in losses from Los Angeles wildfires, doubling initial estimates. JPMorgan analysts revised their initial estimates on insurance industry losses as blazes continue to spread through Hollywood’s some of the most high-end properties.
This projection comes as over 100,000 residents received evacuation orders, and some 15,000 structures are now at risk. JPMorgan puts total economic losses at over $50 billion if fires continue to rage out of control, one of the costliest natural disasters in California history.
Major insurers face significant exposure, especially those specializing in luxury properties. Allstate, Travelers, and Chubb are among the most exposed carriers in California, with Chubb having a significant concentration in high-net-worth properties.
The reinsurance sector also faces significant risk, with companies like RenaissanceRe and Arch Capital likely to share in the mounting payouts.
The crisis has further deepened the problems of California’s already strained insurance market. Several major insurers, including Allstate and State Farm, have stopped issuing new home insurance policies in the state, pointing to regulatory constraints on premium increases.
State Farm has also decided to drop coverage for 72,000 properties, or 69 percent of its insurance plans in the Pacific Palisades area- which is now severely hit by the current fires.
These coverage restrictions have forced many homeowners to turn to California’s state-backed Fair Plan or less-regulated “non-admitted” insurers. The Fair Plan, with nearly $6 billion in exposure to wildfires in the Pacific Palisades area alone, caps coverage at $3 million per property.
The damage may be comparable to California’s most destructive wildfires, including the 2018 Camp fire that led to $10 billion in insured losses.
Yet, with average property values in the Pacific Palisades running more than $3 million – in contrast to the sub-$500,000 average in Butte County – the financial toll might be much steeper.
Moody’s stated that it expects “insured losses to run in the billions,” but preliminary estimates by Morningstar DBRS said losses would exceed $8 billion.
The situation has drawn renewed attention to growing concerns about insurance affordability in California, where many property owners remain either uninsured or underinsured due to mounting costs.
Climate change has exacerbated California’s wildfire seasons, whereas new development in fire-prone zones and increased home values have contributed to climbing insured losses.
Morningstar DBRS highlights the need for drastic rates increases coupled with improved prevention measures, although this proves expensive for property owners in such high-risk districts.
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