Preliminary data show insurance companies have paid out more than $4 billion for losses from the biggest two of the Los Angeles-area wildfires that swept through the region and destroyed tens of thousands of homes earlier this month.
This week the picture of just how destructive the L.A. wildfires were is coming into focus now that claims professionals have been able to gain some access to the affected areas.
Claims figures from insurers released by the California Department of Insurance on Jan. 30 show that 31,210 claims have been filed for home, business, living expenses and other disaster-related needs. According to CDI, $4.2 billion in claims have been paid.
The figures, which are for the Palisades and Eaton fires, are likely to rise. At this point they look to be heading up toward early estimates from modelers that have come out in recent weeks pegging insured losses at between $8 billion and $40 billion.
State Farm, the state’s top homeowners insurer, this week said it has paid nearly 10,000 claims worth roughly $500 million from home and auto damage.
“As of Tuesday (Jan. 28), we’ve received over 10,200 total home and auto claims and have already put well over a half a billion dollars back into customers’ hands,” a statement from State Farm reads. “We expect these numbers will continue to rise as residents return and assess damage. We will continue to process claims for our customers. We’ve made successful voice-to-voice contact with over 95% of customers who have filed homeowners claims.”
According to a State Farm spokesman, most of the homeowners claims are for fire or smoke damage to property and often involve a claim for additional living expenses.
In L.A. County, State Farm reports insuring 250,000 homes and 880,000 automobiles.
Insurer Chubb this week said the wildfires will cost the insurer $1.5 billion in the first quarter. The carrier’s expected payouts were revealed in a financial statement that detailed the company’s fourth-quarter 2024 results.
Other carriers have yet to report on insured losses. Following State Farm, the state’s biggest homeowners insurers are Farmers Insurance Group, Liberty Mutual Insurance Companies, CSAA Insurance Group, Mercury Insurance Group, Allstate Insurance Group, Auto Club Enterprises, USAA Group and Travelers Group, according to AM Best’s latest data.
While claims professionals are getting into many areas, mop up and safety considerations continue to hamper full access, according to Mark Sektnan, vice president of the American Property Casualty Insurance Association (APCIA).
Sektnan said he expects the figures on insured losses to continue rise.
“Certainly, I would think they would go up,” he said. “Some companies may be paying out on property claims, or on additional living expenses – companies are following the law that requires them to pay particular percentages for coverage and provide additional living expenses for a certain amount of time. And so yes, the claims will definitely go up as we get farther into the rebuilding process.”
The FAIR Plan reported that as of Jan. 28 it has received more than 3,200 claims for damage caused by the Pacific Palisades Fire and more than 1,200 claims for damage caused by the Eaton Fire.
Several claims trends worth noting are already emerging from the wildfires. One is that many homes affected by the fires were totally destroyed by the blazes, which blew up in the period of about a day, driven rapidly over brush by hurricane-force winds.
There isn’t much left of many properties, which are being declared total losses, according to one claims specialist.
“We’re seeing total losses,” said Thomas Carstens, vice president, U.S. property/casualty for Crawford. “We’re going out there and there’s really nothing to see. We’re maybe measuring the perimeter of a building trying to figure out a little bit what the structure looked like, if there’s any personal property left, that kind of thing.”
He said claims professionals he has spoken with are taking all losses into account, but the process has become somewhat basic because there are fewer partial losses. They are using estimating platforms to establish a replacement cost and extra cash value, and are considering any other coverages on the property, as well as estimating inventories for personal property, coverages for debris removal, and advance payments for additional living expenses.
But with so many total losses, there’s not much else to do.
“Many of these claims are being settled based on a much faster approach, utilizing square-foot type valuations…because the nature of the fires were so destructive,” he said.
Carstens has seen another trend emerging: properties, particularly the multi-million-dollar homes, are too often turning out to be underinsured.
“The values of these homes are high and that is another feature…some of these locations did not have insurance to 100% of value,” Carsten said. “Some people are insured to total value of the risk, but some of them have an insurance limit that’s less than the replacement cost.”
This may be part of the fallout from the state’s homeowners insurance affordability and availability crisis. It appears some homeowners, especially those with high-value homes or those in risker areas, began accepting more risk as the terms of coverage became harsher.
As rates and availably worsened in recent years on the back of more frequent and longer wildfire seasons, brokers focused on high-net-worth individuals, and properties began reporting tougher experiences with carriers when trying to secure coverage on multi-million properties. Some brokers were more often seeing limits of half the total value of properties, high wildfire deductible, and hundreds of thousands of dollars in premiums.
Severe wildfire seasons made insurers wary. CalFire data show that seven of the state’s 10 most destructive wildfires have occurred in the last 10 years. Carriers began pulling back from the state’s homeowners market, blaming wildfire losses as well as regulations. 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 carrier insures nearly one-in-five homes in the state. It more 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, sought an increase in its California homeowners insurance premiums by an average of 34%.
In response, California Insurance Commissioner Ricardo Lara introduced his so-called Sustainable Insurance Strategy to increase coverage in wildfire-distressed areas of the state. Lara in December announced a catastrophe modeling and ratemaking regulation that will allow carriers to use the models as a factor in setting and getting rates.
The changes to the regulations were well received by the insurance industry, but they may do little to immediately sooth the impact from the L.A. fires, which are expected to cause property insurance carriers to raise rates, reduce coverage options, or both, in California and other at-risk areas, according to S&P.
“California wildfires have had a significant impact on the U.S. property insurance industry over the past three decades, driving up premiums, shaping underwriting practices, and challenging regulatory reform,” S&P stated. “The most recent California wildfires, which started in early January in Los Angeles County, are expected to result in substantial losses for insurers. Post event, we believe property insurance carriers will raise rates and/or reduce coverage options.”
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 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 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 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.
The CDI figures, released under an initiative from Lara, the public consumer claims tracking system, also show 14,417 claims partially paid under laws requiring advance payments to speed recovery. Lara issued a bulletin on Jan. 23 ordering insurers to provide advance funds for replacing personal property or contents in an amount that is 30% of the policy’s dwelling limit, up to $250,000, without requiring policyholders to file an itemized claim, and an advance payment of no less than four months of living expenses.
The bulk of unpaid claims include property damage and debris removal, which will be paid when people begin the process of rebuilding and debris removal, according to the CDI.
“With so much misinformation and speculation about our insurance market after the Southern California wildfires, it is critical for the public to track claims and monitor payouts,” Lara said in a statement. “All eyes are on the insurance companies, and so are mine. I want consumers to know that we are closely monitoring the entire claims process to ensure they are protected. I expect insurance companies, including the FAIR Plan, to continue providing advance payments that are essential for getting survivors back on their feet as quickly as possible.”
Topics
Catastrophe
Natural Disasters
Wildfire
Louisiana
