Moody’s Ratings said in a report on Thursday that it expects the Los Angeles wildfires to increase property insurance costs across California.
According to Moody’s, the state’s already noticeable insurance pricing and availability challenges are likely to intensify, with negative implications for property prices, consumer spending and public sector credit quality.
Preliminary estimates from Moody’s RMS are for insured property losses to be as much as $30 billion from the fires. Catastrophe modeler KCC said on Thursday that insured loss from privately insured and California FAIR plan policies to residential, commercial and industrial properties, and autos from the Palisades and Eaton Fires will be close to $28 billion.
Estimates issued by Verisk earlier this week peg insured losses to property from the Palisades and Eaton fires between $28 billion and $35 billion, which includes losses to the California FAIR Plan. The fires are also expected to put a strain on the FAIR Plan. FAIR Plan doesn’t have enough surplus for this level of loss, Gerald Glombicki, senior director at Fitch Ratings, said in an interview with Insurance Journal. The FAIR plan disclosed reinsurance first kicks in after claims will reach $900 million, and policy exposure of $4.8 billion to structures in the Pacific Palisades and Eaton fire zones, according to Moody’s.
The highest figures issued on insured losses so far include a high of $40 billion put out last week from Keefe Bruyette & Woods analysts. CoreLogic indicated a $35 to $45 billion range of insured losses for two major fires in Los Angeles.
At one point the L.A. area had five significant ongoing wildfires. Total losses from the fires are expected to be massive. AccuWeather revised its preliminary estimate of the total damage and economic loss from the fires to between $250 billion and $275 billion.
None of this takes into account potential losses from two new wildfires that have broken out in Southern California, which are spreading quickly abnd forcing evacuations. The Hughes Fire, which began Wednesday and grew within hours to engulf more than 10,000 acres, is burning north of Los Angeles, authorities said. The Sepulveda Fire started early Thursday west of the city near the Getty Center art museum and has burned 40 acres.
The fires have become a talking point and impetus of sorts for a revamp of the state’s landmark insurance law, Proposition 103. The law prevented using reinsurance rates to help set homeowners insurance rates and it prevented the use of catastrophe models to set rates.
Both of those things are changing.
California Insurance Commissioner Ricardo Lara recently announced what he is calling the final step in his efforts to help the state’s ailing homeowners insurance market with the Net Cost of Reinsurance in Ratemaking Regulation, which enables reinsurance as a ratemaking factor and requires insurers to increase coverage in high-risk areas.
The step, which the California Department of Insurance said will create more insurance coverage options for Californians while limiting the costs passed on to consumers, is designed to work with other reforms underway.
The new regulations come as the state has seen broad insurance carrier pullback from the wildfire prone state. They also began requesting steep rate increases. State Farm applied for large rate increases in California, a year after the carrier got rate approvals of 7% and 20%. The insurer, the largest in California, insures nearly one-in-five homes in the state. It recently requested a 30% rate increase for its homeowners line, a 52% rate increase for renters and 36% rate increase for condo coverage.
Allstate, which stopped issuing new California homeowners insurance policies in 2022, is seeking an increase in its California homeowners insurance premiums by an average of 34%. It would be the largest rate increase this year and would impact more than 350,000 policyholders.
Moody’s said in its report that the L.A. wildfires “are certain to be the costliest wildfire disaster in California’s history,” and if insured property losses reach Moody’s $30 billion estimates, that would be more than twice those of the 2018Camp Fire, previously the state’s most damaging fire event.
“The LA wildfires underscore the high level of physical climate risk in California, which is seriously challenging its property insurance market and causing more frequent economic interruptions across the state,” the Moody’s report states.
Top photo: Palisades Fire in Los Angeles, California. January 2024. Source CalFire.
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Wildfire
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