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After a week of intense firefighting efforts, Los Angeles is still dealing with the most destructive wildfires in its history.
While firefighters are still busy battling active blazes, weather services have warned that intensifying winds could lead to extremely critical conditions.
The latest death toll stands at 25. Insured losses now range from 10 to 30 billion USD, according to initial estimates by various experts. Economic damage is estimated at 250 to 275 billion USD.
Rating agencies S&P and Fitch Ratings do not believe that the losses will have a significant impact on insurers and reinsurers, given their adequate capital levels.
California: fire insurance crisis
California has been prone to large-scale natural disasters for years, including catastrophic wildfires. Faced with this threat, several insurance companies operating in America's richest State have either reduced or withdrawn their coverage for this type of risk.
In March 2024, State Farm announced that it was terminating 72 000 homeowners insurance policies in high-risk areas. Other insurers such as Allstate and Farmers Group stopped underwriting new policies.
These insurers explained that their decision was due to claims cost inflation, reinsurance market conditions and regulatory restrictions that have made it impossible for them to freely adjust their rates in California.
The withdrawal of insurance companies from the California market has fuelled the expansion of the “non-admitted” market, a segment that includes specialized “excess and surplus (E&S)” insurers. These carriers can operate without state approval, and can therefore provide specific coverage at higher rates.
The State also provides insurance through the FAIR Plan, a Californian insurer of last resort, which provides basic coverage that is often more expensive and less comprehensive than traditional covers. As of September 2024, however, this system was already insuring 452 000 homes with insured capital of 431 billion USD, compared with 320 000 homes covered for a total of 270 billion USD during the same period in 2023.
To address this alarming situation, California Insurance Commissioner Ricardo Lara issued regulations on 30 December 2024 requiring insurers to cover homes in high-risk areas, while allowing them to set higher premiums.
