California Wildfires Threaten Insurers Already Teetering From Climate Shocks

The New York Times ^ | Jan. 8, 2025 | Christopher Flavelle

[E. Pluribus Unum]

Companies started pulling back from the state as earlier fires made it harder to turn a profit. Experts warn the exodus could grow.

It’s too soon to know the financial cost of the wildfires burning around Los Angeles. But the toll on California’s troubled insurance market could be enormous.

The fires struck just as California officials have been working to stop insurance companies from fleeing their state.

That exodus, driven by rising losses from wildfires that have grown larger and more frequent, could accelerate because of this week’s fires, experts said.

“The California insurance market has been balanced on a knife edge,” said Nancy Watkins, an insurance expert and principal actuary at Milliman, a consulting firm. As homeowners begin filing claims, insurers that cover large numbers of dwellings in Southern California could see a drain on their financial reserves, forcing them to drop customers, be punished by investors or exit the state.

If insurers keep leaving California, it would drive up insurance rates that are already elevated and make coverage harder to find, said Sridhar Manyem, senior director for industry research and analytics at AM Best, a company that rates the financial strength of insurers.

The Los Angeles fires pose another threat to California’s insurance industry, beyond the money those companies will have to pay directly to their customers.

In the areas hit by this week’s fires, many homes are insured through a state-backed system called the California FAIR Plan, designed to be a last resort for homeowners who cannot find insurance coverage on the private market. The plans are more expensive and provide less coverage than commercial versions.

The number of homes in the ZIP code affected by the Palisades fire that are enrolled in the FAIR Plan almost doubled between 2023 and 2024, said Tim Zawacki, an insurance sector strategist at S&P Global Market...

[catnipman]

“While this would mean only the very rich could afford beach housing or much more modest structures, the rest of us wouldn’t have to support it.. Building a $million plus mansion on the beach is kind of stupid if you think about it.”

100% correct ... folks have been pointing this out forever, namely that Federal taxpayers [us] subsidize beach house ownership via The Federal Emergency Management Agency (FEMA) which offers flood insurance through the National Flood Insurance Program (NFIP). This insurance can help protect beach houses from flood damage.

IOW, just another example of corrupt government overreach distorting the marketplace ..