LA blaze damage likely to be largest wildfire insured loss in US history  January 14th 2025

LA blaze damage likely to be largest wildfire insured loss in US history - Business Insurance

The Los Angeles wildfires, which have reduced entire neighborhoods to smoldering ruins and left an apocalyptic landscape, could become the costliest wildfires in U.S. history in terms of insured losses if analysts’ estimates of up to $20 billion materialize.

Dangerously high winds were expected to resume on Monday in Los Angeles, potentially hampering efforts to extinguish two stubborn wildfires that have claimed the lives of at least two dozen people.

The Los Angeles wildfire loss estimates are critical as they underscore the escalating financial risks posed by climate-related disasters, highlighting potential implications for the insurance industry and the broader economic resilience.

Power grid faults surged right before Los Angeles wildfires began: expert

[Ed. note: as of this writing the cause of L.A. area wildfires has yet to be officially identified. Reports of arson, man-made causes, fireworks on New Years' Day and other stories are likewise running rampant.]

A company that monitors electrical activity says faults along the Los Angeles power grid skyrocketed in the same areas where three of this week’s major wildfires are currently raging.

Bob Marshall, the chief executive of Whisker Labs, told Fox News Digital that the company recorded sharp increases in faults in the hours prior to the Eaton, Palisades and Hurst Fires.

Marshall said that his company has a network of around 14,000 sensors known as "ting" sensors across Los Angeles that can pinpoint and identify faults generated by electrical arcs. Through its network of sensors in homes, Whisker Labs is able to monitor the electric utility grid with "extraordinary precision and accuracy."

Insured losses from Los Angeles wildfires 'manageable'

The impact of the wildfires sweeping through the Los Angeles area on California homeowners insurers is expected to be manageable despite the projection of heavy economic losses.

Three fires that broke out Jan. 7, the Palisades fire, the Eaton fire, and the Hurst fire, had scorched almost 28,000 acres as of 7:30 a.m. ET Jan. 9 and had caused between $52 billion and $57 billion in preliminary damage and economic loss, according to AccuWeather.

Even with the expected heavy losses, carriers should be able to handle insured losses from the event considering the recent rate hikes approved in the state, said Janet Ruiz of the Insurance Information Institute.

"These losses are going to be manageable," Ruiz said in an interview. "The companies are getting the necessary increases [and] it's all about collecting adequate premium to be able to pay off the losses."

Insured losses

Piper Sandler analyst Paul Newsome said in a research note that while it is still too early to calculate total insured losses, they should be "rather manageable given the profitability and capital levels for most insurers."

Losses from the wildfires have the potential to rise significantly as CoreLogic said in a news release that there are over 456,000 homes with nearly $300 billion in reconstruction costs within the Los Angeles and Riverside metropolitan areas.

Jasper Cooper, vice president and senior credit officer for Moody's Ratings, said in an email that insured losses are expected to run in the "billions of dollars given the high value of homes and businesses in the impacted areas," adding that commercial property losses could be significant.

Former California insurance commissioner calls on carriers to step up amid Los Angeles fires

Devastating wildfires in Los Angeles are expected to rack up billions in insured losses. However, one former California insurance commissioner said he expects the catastrophe to be an “earnings event” for carriers, thanks to key regulatory reforms made in the state last year.

Dave Jones (pictured below), who served as insurance commissioner between 2011 and 2019, called on insurance companies to step up and take further action to help stabilize California’s insurance market, including factoring mitigation efforts into their risk pricing.

“This isn’t just about insurance,” Jones stressed. “It’s about how we adapt to a changing world. And right now, we’re not doing enough.”

Insured losses mounting in Los Angeles wildfires

According to Jones, insurers will be adequately reserved to cover the losses, currently estimated between $10 billion to $20 billion.

“They're not going to make underwriting returns this year, that's for sure,” said Jones. “But they have very sophisticated capacity to model the likelihood of these events. They use that modeling to decide how much they want to ask for (in premium).”

LA wildfires threaten billions in insurance losses: Moody's

The recent wildfires in the Los Angeles area are expected to cost property and casualty (P&C) insurers billions of dollars due to extensive damage to residential and commercial properties.

The ongoing fires, notably the uncontained Palisades and Eaton fires, have caused destruction and prompted mass evacuations, with the California Department of Forestry and Fire Protection actively engaged in containment efforts.

According to Moody’s, the high-value homes and businesses in the affected areas suggest that insured losses will be among the most significant in California's history.

"We expect insured losses to run well into the billions of dollars," Moody’s said in a report.

State Farm, the largest homeowners insurer in California with $2.75 billion in premiums written, could face significant exposure.

The situation is further complicated by elevated construction costs. Both material prices and labor costs have remained high since the pandemic, which could amplify the final insurance payouts.

Insurers will also face additional living expense claims, typically capped at 30% of a dwelling's value, and business interruption losses for commercial properties.

For context, California's most expensive wildfire to date, the 2018 Camp Fire, resulted in insured losses of $10 billion ($12.5 billion in 2024 dollars). The Woolsey Fire, which previously hit Los Angeles and Ventura counties, caused $4.2 billion in insured losses ($5.3 billion in 2024 dollars).

California wildfires unlikely to affect P&C re/insurer ratings: Fitch - Reinsurance News

In a new report, Fitch Ratings has confirmed that even though the Los Angeles wildfires will cause insured losses considerably higher than past events, they are not likely to affect ratings of property and casualty (P&C) insurers and reinsurers.

The ratings agency expects insured losses to remain within ratings sensitivities for affected issuers due to ample capital levels, diversified risk exposure, and insurers’ ability to increase premium rates.

Since the fires are not fully contained, the estimation of insured losses is still ongoing, but industry analysts and observers have estimated the insured losses range to be between $10 and $30 billion, with economic losses currently ranging between $150 billion to $275 billion.

Fitch explained, “Expected losses for rated re/insurers, while not affecting capital, will reduce near-term earnings, depending on exposure to claims from homeowners, auto, commercial property, and business interruption insurance. Companies most susceptible to negative rating actions are those where wildfire losses exceed earnings and reinsurance limits, weakening capital relative to rating sensitivities.”

The losses could, however, pressure weaker capitalized companies, and also increase reinsurance costs and further strain a system that has seen insurers retreat from the market, warns Fitch.