After back-to-back wildfires in 2017 and 2018, insurers paid out twice as much in claims as they received in premiums. (Credit: Courtesy photo)
The wildfires sweeping through the L.A. area will likely add layers of complexity to California’s already-complicated insurance landscape, experts say.
On Thursday, JPMorgan estimated the fires will cause more than $50 billion in damage, double the estimate it issued on Wednesday, and that number could continue to grow if the fires aren’t contained soon. Around $20 billion of that damage is expected to be insured.
At at Burns & Wilcox webinar, Bill Gatewood, the company’s corporate senior vice president and national personal insurance practice leader, said he’d recently spoken with Wildfire Defense Systems in California, an insurance partner providing firefighting services, about the damage.
“The word that was used was ‘unprecedented,’” he said. “They’re seeing something they’ve never seen before. And that does not bode well for the marketplace.”
Many major insurers had already dropped plans and even pulled out of the state entirely following previous wildfires that had left them unprofitable. After back-to-back wildfires in 2017 and 2018, for example, insurers paid out twice as much in claims as they received in premiums.
As a result, many homeowners have turned to the California FAIR plan, a state-run insurance pool that covers up to $3 million in damages for residential properties and $20 million for commercial properties.
Located in suburban — not rural — areas, the houses and businesses impacted by the fires so far were likely rated as low or moderate risk, Gatewood said, and covered by either the FAIR plan or admitted carriers. “We’ll all be watching with great interest to see how this event is going to impact the FAIR plan as well as the admitted carriers who are out there,” he said.
The location of the fires also means more commercial properties will be affected than in typical wildfire scenarios. “Typically, when we think wildfire, we think rural areas and more of an impact on homeowners than commercial buildings,” said Chris Zoidis, president and CEO of Atain Insurance Companies, also speaking at the webinar. “But this is hitting suburban areas, and it’s moving quickly.”
The commercial market was already starting to have a more heightened sense of wildfire risk over the last year or so, Zoidis said, and the L.A. wildfires will likely raise even more concern.
Before the fires, California’s insurance marketplace was showing small signs of improvement. In December, Farmers Insurance announced it would gradually re-introduce several coverage options in the state. Regulatory changes that rolled out this month aim to allow insurers to price risk more accurately in exchange for covering high-risk areas. The wildfires will likely change that outlook.
“If you had asked me a week ago, I would have said California is going to continue with the status quo this year,” Gatewood said. “These fires are going to make that very hard. None of this is going to be good for the California marketplace.”
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