Fires in Los Angeles: towards an increase in insurance premiums

The fires which are devastating Pacific Palisades and Malibu, two upscale areas of Los Angeles, will be the most expensive ever to occur in California, say experts, who expect an increase in premiums in a region neglected by many insurers.

Estimates by JPMorgan analysts on the total amount of damage and insured losses have doubled in less than twenty-four hours, to now reach 50 and 20 billion respectively. And the flames were still advancing on several fronts Friday.

These record levels already far exceed the Tubbs (2017) and Camp (2018) fires, for which the estimate of insured damages climbs, according to sources, up to 16 billion.

The value of the houses makes all the difference: at this point, more than 10,000 buildings have been destroyed this week, the vast majority of houses worth an average of three million dollars.

By comparison, some 18,000 buildings were destroyed in the Camp fire, but the average home value was $500,000.

No compensation issues

According to David Burt, founder and CEO of the consulting firm DeltaTerra on financial risks linked to climate change, the market value of the 15,400 houses in Pacific Palisades reaches nearly $13.50 billion.

However, experts believe that insurance companies will have no problem compensating their customers.

According to the Standard and Poor’s rating agency, insurers are starting the year with comfortable reserves thanks to the good financial results achieved in two years and they have significantly reduced their presence in Californian regions highly exposed to fire risks. They are also well diversified.

Same feeling at JPMorgan, which insists on the fact that at this stage, it is mainly home guarantees that will be requested then, to a lesser extent, coverage for businesses/retails and automobiles.

“There has been a massive exodus of big market players in this part of California,” noted Friday Ben Keys, professor specializing in real estate and finance at the Wharton School of the University of Pennsylvania, during ‘a conference. He said the rate of non-renewal of contracts has been “huge recently” in the state.

Temporary dressing

California Insurance Commissioner Ricardo Lara announced on Wednesday protection, for one year, for owners in affected areas and surrounding these fires, against non-renewal and termination of guarantees. This type of measure protected more than a million contracts in 2024.

In 1968, the coastal state set up a public insurance system, called FAIR, for owners who could no longer find a private insurer.

This “bandage was supposed to be temporary, the time that people move from one insurance policy to another but it is now extended well beyond,” lamented Mr. Keys, specifying that his exposure had increased from 50 billion in 2018 to more than 450 billion dollars currently.

To bring the companies back, Mr. Lara also initiated a reform authorizing them to increase contributions provided that they do not apply any geographical exclusion.

“No more “cherry-picking” to select the best contracts,” summarized Susan Crawford, climate and geopolitics specialist at the Carnegie Foundation for International Peace.

According to her, “the acceleration of fierce climatic events […] should trigger awareness that things need to change. “We need political adjustment measures in response to rapid climate change,” she argued.

New national strategy

In the meantime, Californians – and perhaps even Americans – can prepare for tariff hikes. Because the year 2025 has only just begun, and the previous year was marked by very destructive disasters.

According to modeling from the specialist site AccuWeather, hurricanes Hélène (September) and Milton (October) caused 160 to 180 billion and 225 to 250 billion damages respectively. He estimates the total cost of damage in Los Angeles at between $135 billion and $150 billion.

The US State Department published a new national strategy on climate change on Friday, specifying that disasters linked to this phenomenon (droughts, fires, floods, winter storms, hurricanes) had caused $182.7 billion in economic losses in 2024. Twice as many as in 2023.

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