First the fire, then the insurance vacuum  January 10th 2025

First the fire, then the insurance vacuum

First your home burns to the ground, then you remember that the insurance company canceled your policy a few months ago.

That's the situation facing many of the Pacific Palisades homeowners who've lost their homes in the disastrous wildfires that roared through their neighborhood this week.

Many thousands of homeowners in the Los Angeles area were booted off their policies in recent months, especially those who had been covered by State Farm, which abandoned much of the state. A recent investigation by the San Francisco Chronicle found that the insurer had planned to cancel 69.4% of policies in the Pacific Palisades neighborhood.

Insurance Commissioner Ricardo Lara said in late December that California would allow "reinsurance" costs -- the insurance that insurance companies buy -- to be added into premiums while also requiring insurers to write more policies in high-risk areas. But it's doubtful that action came soon enough to help today's fire victims.

Beyond the Palisades, a similar situation afflicts many homeowners throughout Southern California. Some have been without insurance for more than a year, basically playing roulette with their largest personal asset.

A growing insurance drought California isn't alone. A report published in December by the U.S. Senate Budget Committee found that Florida, Louisiana and North Carolina were also suffering from an insurance drought.

“It’s deadly, deadly serious,” said Sen. Sheldon Whitehouse (D-Rhode Island), who commissioned the report. He called the non-renewals "a sign of market distress."

Nearly 3% of insurance policies in Florida weren't renewed in 2023, the highest non-renewal rate in the nation for the last year covered by the report, which warned that other states were likely to experience similar insurance crises as climate change accelerates across the country.

[Ed. Note: A Must Read] Los Angeles fires expose insurance shortcomings. Could startups do better?

Good morning, it’s finance editor Jeff John Roberts filling in for Allie.

Like everyone here in Southern California, I’m watching in horror as out-of-control fires consume entire communities and force hundreds of thousands around Los Angeles to flee.

The ongoing calamity is shaping up to be the most expensive natural disaster in U.S. history. It is also an economic disaster as the destruction threatens homes and businesses in places like Santa Monica, a hub of the region’s thriving venture capital scene.

The financial fallout from the fires may also deliver a fatal blow to California’s crumbling insurance industry. Many leading providers like State Farm and Costco have already restricted or eliminated coverage in the state, and now home premiums that are already eye-watering will climb even higher. Sadly, many of those who lost their homes in the fires had no coverage at all.

Is there a better way? Can we draw on technology and innovation to design a cheaper, more inclusive insurance regime? Based on the billions of dollars that VCs have poured into so-called “insurtech” one would certainly think so.

A recent report by CNBC featured no less than 150 insurance startups looking to disrupt the industry. Most of these are focused on ancillary services like claim management and fraud prevention, but a good number are in the business of selling home insurance policies. Given this flourishing of startups with cutting edge analytic tools, it’s perhaps surprising that insurance options for many Americans are more scarce and costly than ever.

One reason for this is that, like so many other venture-backed fields, the value and potential of insurtech got vastly overstated in the go-go days of 2021. The hangover has been brutal. A TechCrunch survey from mid-2023 uses words like “death” and “disillusionment” while describing the truly horrid returns the sector has delivered for investors.

The bigger problem, of course, is that the home insurance market is simply too vast and capital intensive for startups to make much of an impact. There are the familiar insurance brands like Progressive and Farmer’s, whose deep pockets are backstopped by reinsurance firms with even deeper pockets. The reinsurance firms are in turn backstopped by so-called retrocession firms, with the state and federal government sometimes stepping in as a very last resort. It’s a very different ballgame than the one most startups play in, no matter how cutting edge their tech is.

The problem of how to provide affordable home insurance is harder still since it involves prickly political questions. These include deciding whether those who build homes in disaster-prone areas should be entitled to coverage in the first place, and how to build public infrastructure to ensure fire hydrants don’t run dry as they did in Los Angeles this week.

Finding the response to these questions will require a civil, evidence-based national conversation—one that feels far-off in light of the ugly finger-pointing already underway between President Trump and California lawmakers. Perhaps that conversation will come in time. For now, spare a thought for the millions of Americans still facing the fire threat and the brave firefighters working to contain it.

If you wish to help, here are some resources courtesy of Fortune’s Andrew Nusca: If you’re keen to lend support: The LAFD Foundation equips and supplies firefighters. The California Fire Foundation supports firefighters and affected residents. The Cal Fire Benevolent Association supports firefighters and their families. LA County’s Department of Animal Care and Control shelters displaced animals. GoFundMe has aggregated fundraisers related to LA’s wildfires as well as created its own relief fund. And the American Red Cross is on the scene, as always.

Jeff John Roberts Twitter: @jeffjohnroberts Email: jeff.roberts@fortune.com Submit a deal for the Term Sheet newsletter here.

The Insurance Industry at an Existential Crossroads: Embracing a Data-Driven Future | Dave Wechsler

For decades, the insurance industry has operated with a tried-and-true formula: assess risk, price policies, and manage claims. However, the landscape is shifting dramatically, and incumbent insurers find themselves at an existential crossroads. Traditional business models are under siege, not only from tech-savvy new entrants but also from a rapidly evolving risk environment. Inaction is no longer a safe option.

The Dual Threat: New Entrants and Changing Risks

Startups and technology-driven challengers are rewriting the rules of insurance. Armed with cutting-edge tools, these new players leverage AI, big data, and advanced analytics to deliver personalized, seamless customer experiences. They are not just digitizing processes but fundamentally redefining how insurance is conceived, sold, and serviced. Their agility and customer-centric approach are forcing incumbents to re-evaluate their strategies.

At the same time, the nature of risk itself is undergoing profound changes. Extreme weather events, driven by climate change, are introducing unprecedented volatility to underwriting models. The rise of AI and automation brings with it new forms of business disruption, from cyberattacks to supply chain upheavals. Insurers must grapple with risks that are more interconnected, systemic, and unpredictable than ever before.

COMPLETE POST

Dave Wechsler, Principal, OMERS Ventures, Fintech/InsurTech Investor