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Financial cost behind LA firestorms
So far there is no official dollar amount for the LA wildfire damages, but initial estimates by some experts put it at $20 billion to $50 billion for insurers.
OAKLAND, Calif. - There is no official dollar amount for the damages from the Los Angeles wildfires, but initial estimates by some experts put it at $20 billion to $50 billion for insurers.
"They've gotten billions of dollars in rate increases over the last two years. Now they're going to have to pay those claims," said Harvey Rosenfield, founder of Consumer Watchdog and author of Prop 103, which requires insurance companies to justify any rate hikes and get state approval.
The California Department of Insurance website states that there are about 8.4 million homeowner policies issued in the state. Over the past few years, however, companies such as State Farm, Allstate, Tokio Marine Holding, and Nationwide have exited the state, raised rates, or canceled policies. More than 75,000 Californians have lost coverage as the insurance industry tries to adjust to year after year of catastrophic wildfires and devastating losses.
"A lot of people around the state have been unable to afford insurance. Even the rich folks in Pacific Palisades here in LA, some of them did not renew their insurance coverage, which means they're not covered at all," Rosenfield said.
Finding ways to cover those costs and continue writing policies in these high-risk areas is going to be a challenge.
California fires map: Los Angeles evacuation orders, warnings
As of Friday morning, 153,000 residents remained under mandatory evacuation orders, with another 166,800 under evacuation warnings.
The Los Angeles fires come just as some insurance companies, such as Mercury, announced this week that they plan to return to issuing policies in areas in Northern California, such as Paradise, which had been devastated by fires and abandoned by many insurers.
The state has negotiated new rules with insurance companies. The Department of Insurance says the Los Angeles fires will not impact those new rules, allowing insurance companies to use new tools to better assess fire risk as they set prices for premiums and coverage.
"California has been the only state requiring insurance companies to use backward-looking historical data when they look at their future rates," Michael Soller, Deputy Commissioner of the California Department of Insurance said. "And so that's the change, insurance companies are going to be able to use forward-looking what we call catastrophe models. And those models have to be used to incorporate the billions that are being spent on wildfire safety. So as we make ourselves safer, we're going to see that reflected in rates that didn't happen before.
Steve Young, general counsel with the Independent Insurance Agents and Brokers of California, said if losses from the Los Angeles fires are too big for insurers and the state's FAIR insurance of last resort to cover, that could slow companies' return to the market, despite the new rules.
What caused LA fire hydrants to run out of water?
Firefighters working to extinguish the wildfires in the Los Angeles area have faced challenges as hydrants either have water shortages or completely ran out.
"Depending on the magnitude of those assessments, that could definitely be a factor in making insurers look twice about coming back to California," Young said.
Rosenfield said it is important for consumers to stand their ground to get their full coverage for losses according to each policy. He has one important tip.
"Take your camera. Make a video of all the possessions in your house...inside and outside. When the time comes, you can show them," Rosenfield said.
The Department of Insurance also has tips for homeowners listed on its website.