The LA fires are set to be the costliest wildfire disaster in California history. (Credit: Mario Cobian/Adobe Stock)
The LA wildfires will make it harder for all California residents to find and afford homeowner’s insurance going forward, according to a new report from Moody’s Ratings.
Moody’s RMS estimates insured property losses from the fires will be up to $30 billion, and uninsured property losses will be billions of dollars more. This would make the fires the costliest wildfire disaster in California history, with more than twice the losses of the 2018 Camp Fire, previously the state’s most damaging fire event.
According to Moody’s, the cost, coupled with increased wildfire risk, won’t do the state’s insurance market any favors. “California’s insurance pricing and availability challenges are likely to intensify in the wake of the latest devastating fire, with negative implications for property prices, consumer spending and public sector credit quality,” the report says.
Insurers could grow even more reluctant to cover California properties, and premiums could rise substantially in the wake of the fires. Insurers have been pulling back from the state for years, due to wildfire risk and legislation that limited rate increases.
Regulatory changes that went into effect at the beginning of the year sought to reverse the pullback, allowing insurers to incorporate catastrophe modeling and other costs when setting rates. Major carriers like Farmers had started to expand coverage in the state again, but that progress could be halted due to the fires.
Even if insurers stay, premiums — already set to rise under the regulatory changes — could skyrocket.
“The extensive damage from the Los Angeles wildfires may reflect increased risk that prompts insurers to further reduce their market participation, even with increased regulatory flexibility over premium setting,” the report says.
A lack of funds in the state’s FAIR plan could also leave residents paying more. The plan’s member insurers may have to pay assessments into the plan if it doesn’t have enough funds to cover claims from the fire. Last September, Ricardo Lara, California’s insurance commissioner, issued a bulletin that would allow insurers to collect supplemental fees from policyholders to recoup costs from FAIR plan assessments. Those fees could impact all FAIR plan participants across the state, not just in LA.
Whatever happens, the Moody’s report foresees a more expensive California. “The rising cost of property ownership could constrain consumer spending and be an impediment to population growth and movement into the state, which would slow longer term economic expansion and revenue growth,” it says.
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