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Insurers are looking at losses of up to $10 billion from the Los Angeles wildfires after the flames destroyed some of California's most unique properties, according to early estimates by analysts.
Ratings agency Moody's said it could “expect insured losses to run into the billions of dollars given the high value of homes and businesses in the affected areas”, while rival Morningstar DBRS said initial estimates pointed to total insured losses of more than $8bn.
JPMorgan analysts said in a “preliminary estimate to help investors gauge the potential impact” that they believe insurance losses “could be close to $10 billion” based on an assessment of the affected area.
Professional insurance companies are targeting high-income households facing high premiums, JPMorgan said in its note to clients, with Allstate, Travelers and Chubb among the most exposed carriers in the country. Chubb focuses primarily on high value properties.
More than 100,000 residents have been ordered to evacuate, as fire officials say about 13,000 buildings are at risk.
Allstate and State Farm are among the insurers that have stopped selling new home insurance policies in the state, blaming regulatory caps on inflation that make it harder to cover losses. Insurers have dumped consumers in the most vulnerable areas.
Last year, at State Farm announced will not renew policies for 72,000 homes and apartments in the state, including 69 percent of insurance plans in the upper Pacific Palisades area that have been covered by recent wildfires.
That has left many homeowners turning to California's state-sponsored Good Plan and unregulated home insurance policies, called “unapproved” policies.
The Right Plan, which by the end of September had less than $6 billion in wildfire exposure in the Pacific Palisades area alone, offers up to $3 million in property coverage.
Insurers and analysts say that the damage caused by the most dangerous fires in recent years, including the 2018 camp fire in Butte County, California, which led to an insured loss of 10bn.
Climate change has increased wildfire seasons in California. New development extending into fire-prone areas and wildlands surrounding major cities has also spurred increased insured losses, and higher home prices.
Morningstar DBRS said the fires “reinforce the need for adequate price increases in home insurance in California” and prevention and mitigation measures.
But the rating agency noted that affordability of property insurance in California “is likely to remain a challenge . . . and many homeowners who choose to remain uninsured or uninsured due to high costs”.
The cost of property disaster insurance, or insurance policies, also has rise quickly.
RenaissanceRe and ArchCapital are among the reinsurers exposed to the wildfire, JPMorgan said, but bank analysts say their losses will be lower than those of similar events before 2023.
That year, many brokers also raised the limit at which policies begin to cover losses, leaving primary insurers more exposed than reinsurers.