For Home Insurance Market, LA Fires Come at Critical Moment
The Woodland Hills-based carrier rolled up in a coach bus Friday and set up shop at the Home Depot at 1200 Flower Street in Burbank, along with three other locations across Los Angeles County.
Risk Calculations
Behind the scenes, the state’s insurance market is in turmoil, and that will eventually hit policyholders in the form of higher premiums and more owners turning to the undercapitalized California FAIR Plan, the state’s insurer of last resort, analysts say.
“Wildfires were never a factor when people were providing coverage in California until about 2012,” said Emmet Hollins, principal at consulting firm Symphony Risk Solutions. “Then they started popping up. After around 2015, they became an issue.”
Covered losses and expenses from wildfires in Northern California in 2017 and 2018 surpassed what carriers made in premiums in those years, tipping insurers into the red. On average, insurers paid out $1.08 for every dollar they earned during the period, according to the Insurance Information Institute, a national industry association.
“No Numbers”
Insurers say it will take weeks to get an accurate picture of their total exposure to the fires burning in L.A. County, but Wells Fargo analysts estimated on Monday total insured losses across the market will likely exceed $30 billion.
Busy Adjusters
Just last month, Insurance Commissioner Ricardo Lara permitted carriers to use catastrophe modeling and factor the cost of reinsurance into their prices — something they have long lobbied for, Hollins said. But carriers will also be required to cover high-risk areas in proportion to their overall share of the market under the new regulations.
Conclusion
The Los Angeles fires have brought the insurance market to a critical moment. With the total insured losses expected to exceed $30 billion, carriers will need to adjust their premiums and coverage options to reflect the new reality. The FAIR Plan, the state’s insurer of last resort, is already facing financial strain, and the state’s Department of Insurance fears that the increased costs could make homeownership unaffordable for some. As the industry continues to grapple with the aftermath of the fires, one thing is clear: the insurance market in California will never be the same.
FAQs
Q: How will the Los Angeles fires affect insurance premiums?
A: The fires will likely lead to higher premiums for homeowners in California, as carriers adjust their rates to reflect the increased risk.
Q: What is the FAIR Plan?
A: The FAIR Plan is the state’s insurer of last resort, providing coverage to homeowners who cannot find insurance through private carriers.
Q: How will the new regulations affect carriers?
A: The new regulations will require carriers to use catastrophe modeling and factor the cost of reinsurance into their prices, and to cover high-risk areas in proportion to their overall share of the market.
Q: What is the total insured loss expected to be?
A: Wells Fargo analysts estimate that total insured losses across the market will likely exceed $30 billion.
