Found it rather interesting that it was put out in Oct 2024. It also includes a link State Farm put out in March 2024 referenced in joejam’s linked article.
My main critique of the link provided above is that it makes references to CA as a whole in addressing the situation rather than also providing some more specific information on “areas of high risk for wildfire damage” that might be more relevant in terms of understanding what’s being stated by various entities about the situation.
State Farm dropped 70 percent of its policies in the Pacific Palisades last year, more than in any other ZIP code in California, [according to Politico]
Dodged a bullet. I wonder if it was due to housing material.
Here’s a photo of the Japanese firewall (to stop fire spreading to other districts in Tokyo) mentioned -
Their property is potentially partially sacrificed as the cost of helping keep fire spread from one side of the structure to the other. As to their lives…evacuation should be possible. If evacuation isn’t possible due to the speed/scope of the fire…that’s probably a fire beyond the scope of the disaster it was designed for.
A couple of months ago, I sat through a presentation by one of the private companies mentioned in one of the earlier posts, which contracts its services to insurers. Part of what they do is “seal up” buildings their modeling suggests are in harm’s way from a particular fire. Assuming the exterior of the building is fire-resistive (as many buildings are in wildfire-exposed areas), most of the property loss comes from fire getting “in” the building, since even fire-resistive dwellings tend to have quite a bit of combustible material inside. By sealing up the building in a way to keep the fire from getting in (they didn’t go in to detail in the presentation), they reduce the severity of the loss to that property…or at least that’s what they said.
Anther issue is that some people like to see the mountains from their homes. Putting up giant apartment buildings that block that view will cause a lot of NIMBY’ers to come out against them.
Kenny Smith weighing in on the insurance crisis in CA. only need to watch about 45 seconds. I think his opinion is representative on the average person on the street, which goes to show that insurance companies need to think long and hard about their public perception and how they can change it. I mean, even Altria and Philip Morris are looked on more favorably than State Farm and AllState.
He could have said the same thing about flood insurance except that people are now conditioned to accept that insurance companies need government backing to cover flooding.
Fire risk in parts of California is pretty much uninsurable. Like flooding, it can wipe out entire neighborhoods. Perhaps even worse than flooding, as after a fire like pacific palisades, Lahaina or paradise, there’s nothing to salvage.
Hopefully there will remain incentive to make the home as fire proof as possible and it happens for the whole neighborhood because there’s not much use fireproofing your own house if noone around you does it.
I’m not so sure about this. It is not as if the same places get fires every few years, unlike flood zones.
What is the solution? If a state-wide mandate for fire insurance with some subsidy for certain areas on the caveat that the state can go in and do controlled burns to lower the state’s exposure, sure. Need to stop people from being able to complain about, or sue to stop, or change laws because of the controlled burn schedule.
Better regulations for house building. Just like with earthquakes, houses need to be built with fire resistance in mind.
Better design of public spaces in fire prone areas. They should be designed with fire breaks in mind.
There are many things you can do to mitigate the potential damage from fires, but because it comes down to time and cost…it usually gets ignored for the path of least resistance (the minimum that is palatable politically and socially speaking).
On the subject of [un]insurability, this has me wondering if the price of insurance will impact the rebuilding. If you build smaller structures, then the premiums should be lower just based on the fact that the loss can’t be as great. I am not a P&C actuary, so it wouldn’t surprise me if there are other insurance factors that I’m ignorant of. I realize some homeowners may want to rebuild what was lost or expand the structures.
On the topic of “insurability” . . . one key element of an insurable risk is that a claim incidence is independent of a claim incidence of other risks. In terms of a wildfire risk, this will often fail the “insurability” definition because during a wildfire, if there are several structures around you that are on fire, then a fire incidence for your risk is no longer independent.
As for DW’s question about “smaller structures” having lower insurance costs, there are several factors that play into P&C pricing:
Yes, a lower value home will have “lower” costs in terms of claims than a higher valued home; but the probability of a claim is also a key component. And in many personal lines, frequency will be the bigger driver.
The amount of insurance purchased is often not commensurate with the cost to rebuild the structure. That is, a structure might cost $350k to replace but was only purchased for $275k . . . and they get insurance for $250k. Then they’ll complain about not “being covered” when they have a total loss. Note that they’ll get $$ for their claim, but not enough to rebuild to what they had before; this is what they’re complaining about.
To poly’s comment about “better regulation” . . . many insurance companies have built in discounts for structures that are built to be “better risks”. For example, using fire-resistance materials for the roof often will have a sizeable discount for insurance costs. But that kind of material can be pretty expensive up-front–and real estate prices in many areas of CA, especially LA, are just outrageous–and people will opt for cheaper material and “take their chances”.
Like poly, I agree that local ordinances should be structured in such a way as to provide for the public good. Like wild-fire prone areas having a stricter code for external building materials being highly fire resistant. However, even when these ordinances are put into effect, you’ll find many structures are “grandfathered” in at the prior code . . . so getting a community “up to code” will take either decades or a major catastrophe to be sufficiently realized to be of any effect.
Every article on the LA wildfires I’ve read explains insurers’ exit from the state as driven by climate change with no mention of the CDI or regulatory environment… with the exception of the economist
I’m curious how this will play out. At a minimum, the headline seems flat out wrong, or in the most charitable light possible, deliberately misleading.
That makes it sound like they’re going to get more from reinsurance than they have exposure.
But it doesn’t sound like it’s all payable. They do carry substantial risk and it sounds like their slice of the risk significantly outweighs their assets.
And even then they’re not fully covered above $900 million.
Perhaps a nit-pick . . . but an important clarification note.
Insurers aren’t exactly exiting the state so much as reducing their overall risk by not renewing policies in high-risk areas.
In most cases, they already stopped writing new business in those areas, which has the same general end result (people without coverage when the wind fan the flames, so to speak). However, the media today is far more focused on “sensationalism” and writing about a company choosing not to cover someone that they likely don’t have the capital to cover the expected losses in the event of a wild-fire pushing through.
The CA insurance commissioner is trying to set up policies to force insurers to write these business–at rates that are far away from being adequate–and not allowing them to spread that cost across other CA consumers. Instead, he’s trying to underhandedly spread that cost to places like North Dakota and Montana (for example) . . . maybe even Florida!
I think they are leaving the state, just not in some dramatic move. Or reducing their risk as you say… they’re not aiming for 0 policies but increasingly head that way depending on the combination of the CDI and the evolution of the risk.
Very difficult to exit a personal lines line-of-business entirely for most states. Given the heavy regulatory nature of CA–including many aspects encapsulated in law rather than promulgated regulations–it would take several years and a formal declaration for an insurer to actually exit a state.
In addition, to exit a state, the non-renewing of policies would have to be done across the entire book of business and not focused on a handful of geographic areas (look up “redlining” for this).
And earthquake is still a significant exposure in CA; one which is likely to actually have a higher impact than the wildfires if a magnitude 10 quake were to hit the LA or SF areas. But there are backstops in place to help mitigate the insured losses for that type of event. There is nothing for wildfires.
Outside of the wildfire risk, most risks in CA are generally insurable and not too costly for many insurers. Many are able to write that business with a modest underwriting loss and allow investments to cover that loss and still allow for some money to go to surplus (or to investors in the case of stock companies).
