“A few months ago, I had to contact 20 different insurance companies to try to protect my home. None were willing to cover any property in California,” testifies Ryan Alimo, a resident of the Malibu region, an upscale city on the Pacific coast.
Like more than ten million Californians, this artificial intelligence expert lives in an area exposed to fire risks, where taking out insurance has become a real headache. Faced with the increase in fires linked to global warming, insurers are increasingly reluctant to cover new customers and the price of existing insurance has exploded.
On Monday, December 9, a new devastating fire, the Franklin Fire, broke out near Ryan Alimo’s home, in the hills overlooking the coast. Around 1,600 hectares and at least seven properties went up in smoke. Half of the city of Malibu had to be evacuated and several thousand homes are threatened by flames, in this region popular with Hollywood celebrities.
Insurance crisis
The fire raging in Malibu “will make an already difficult situation worse” in terms of insurance for area residents, notes David Russell, professor of insurance and finance at California State University, Northridge. “Insurers who had already taken the risk of covering customers living in Malibu, where fires are frequent, will suffer financially when they have to compensate them, he notes. They will be more reluctant to take this type of risk in the future and will likely restrict their coverage or increase their premiums, or both. »
The Golden State has been going through a real insurance crisis for a little over a year. In recent months, seven of the twelve major insurers in the California market have announced a restriction of their activities within the state. In November 2022, All State, one of the largest insurance groups in California, was the first to cause panic by announcing that it would no longer cover the homes of new customers. In March 2023, the giant State Farm followed suit.
A decision motivated by the explosion in compensation costs linked to the increase in claims but also by the fact that state regulators have until now refused to approve an increase in prices.
The impact of climate change
Faced with this insurance crisis, the Golden State was forced to react. In September, state Insurance Commissioner Ricardo Lara introduced a series of reforms aimed at stabilizing the market. These authorize insurers to increase their prices in exchange for extending coverage for residents of at-risk areas.
“It is not by signing checks to insurance companies that we are going to resolve the crisis,” Jamie Court, the president of Consumer Watchdog, a consumer defense association, was outraged in June when the state unveiled its action plan.
In the long term, “climate change is going to impact the real estate market like never before anyway, David Russell predicts. Some properties in once desirable areas are going to cost more and more to insure to the point where people will be forced to sell them cheaply or abandon them.”
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