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DEADLY wildfires in Los Angeles (LA), now in their eighth day, have destroyed thousands of structures and exposed a deepening crisis in California’s insurance sector.
More than 37,000 hectares (80,000 acres) have burned in LA since the evening of January 7, spreading rapidly due to high winds.
More than 12,000 buildings have been damaged or rendered unusable by the fires, with economic losses estimated at US$150 billion (around IDR2.4 trillion), while the death toll has reached 24. Experts warn that insurers may struggle to cover the extensive damage caused by the wildfires.
Climate change has caused floods, storms and wildfires in California, the most populous U.S. state, making it increasingly difficult for homeowners in high-risk areas to get or afford insurance.
Insurers have cut back on writing new policies in high-risk areas and, in some cases, are not renewing existing policies, leaving many property owners without coverage in the wake of these catastrophes.
The high number of policy cancellations and defaults by insurance companies has drawn widespread attention. Property owners in the affected areas reported that major insurance companies had withdrawn their wildfire coverage before the fires began.
Vice President Kamala Harris also pointed out that many insurers were canceling policies, exacerbating the hardship for affected families.
The report found that seven of the 12 largest insurers by market share had stopped or limited the issuance of new policies in California. Prior to the wildfires, about one in seven homes in the state had minimum wildfire coverage.
But insurers canceled tens of thousands of policies to ensure their financial viability. State Farm General, one of California’s largest home insurers, announced in March 2024 that it would not renew policies for 30,000 homeowners.
Insurance companies such as Chubb, its subsidiaries and Allstate have also stopped writing new policies for high-value homes in high-risk areas. As a result, many wildfire victims are left without coverage for their losses because insurers failed to renew policies before the disaster struck.
State Farm General reported that as of January 10, it had begun processing approximately 4,400 home and auto insurance claims and had reimbursed millions of dollars to its customers.
The extensive property damage from the wildfires, coupled with California’s high real estate prices and uncertain insurance environment, has made it difficult for residents to access insurance in the future.
While the financial toll of the wildfires in the LA area is still being calculated, experts believe the disaster could be the costliest in U.S. history, potentially reaching into the billions of dollars. The damage continues to mount as the fires remain largely contained.
AccuWeather has revised its initial estimate of total damage to US$150 billion, up from its previous estimate of more than US$57 billion last week.
AccuWeather Senior Vice President Jonathan Porter said the total damage and economic losses could amount to nearly 4% of California’s annual gross domestic product.
The estimates include a comprehensive assessment of damages, including destruction of homes, infrastructure, services, evacuation costs, rebuilding and relocation costs, cleanup, recovery, shelter needs and medical costs.
JPMorgan’s analysis estimates that insured losses from the wildfires could exceed US$20 billion, with total losses expected to increase as the fires continue to burn.
Rating firm Morningstar DBRS estimates that insured losses could exceed US$8 billion, depending on the final number of affected properties.
President Joe Biden announced last week that the federal government would cover costs for six months and mobilize all available resources to fight the wildfires.
He also said that the federal government would pay 100% of the cost of the disaster. Meanwhile, insurance company stock prices fell as their reputations were damaged.
Allstate shares fell 5.6%, Chubb fell 3.4%, Travelers fell 4.3%, American International Group fell 1.3%, and Mercury General fell 1.3%. [antaranews]
