Southern California is battling multiple wildfires, particularly in the Pacific Palisades region of Los Angeles, fueled by dry conditions and powerful Santa Ana winds.
“It is safe to say that multiple thousands of structures will ultimately be impacted based on preliminary estimates of what has transpired thus far,” said Josh Darr, global head peril advisory for Guy Carpenter. “How many ultimately depends on containment of these fires which remains at zero percent late Wednesday afternoon under hostile firefighting conditions.”
Further highlighting the severity of the Palisades fires, CoreLogic’s senior hazard scientist Dr. Tom Jeffery pointed out that winds have reached exceptionally high speeds of 50 to 60 mph and beyond. “This not only drives the fires and embers but also inhibits flying the tanker aircraft and helicopters used to suppress the fires,” he shared.
Yet the worse may be to come as the area is likely to struggle to pick up the pieces in the face of limited insurance capacity.
As Christopher Hatt, managing director of Lloyd’s facilities and US personal lines at Novatae Risk Group, explained, California's homeowners’ insurance market has long been under pressure. With the financial stability of the state’s FAIR Plan remaining uncertain, this week's wildfire events could exacerbate insurance challenges, making it even harder for homeowners in high-risk areas, like Los Angeles, to obtain adequate coverage.
The situation is worsened further as several major insurers have pulled out of the California market in recent times. AIG announced its exit from the admitted homeowners’ market in 2022, while Chubb and Allstate have also limited their offerings. State Farm exited last year, taking 72,000 home policies with it. This loss of capacity is contributing to an underinsurance issue in the state.
As Hatt noted, “Homeowners may try to fit their coverage into the constraints of the FAIR Plan or other carriers with limit restrictions. A homeowner may know their property is worth $2 million but can only insure it for $1 million. While this may seem fine if no loss occurs, a claim could leave the homeowner undercompensated.”
Traditionally, the excess and surplus market has been seen as a ‘market of last resort’, but as wildfires continue to plague California the situation may be changing. "It often takes [admitted carriers] a long time to adjust, so their only options are to try to turn things around or gradually pull out, which is where the E&S market steps in," Hatt said. He noted that the E&S market is more nimble, able to offer bespoke forms, adjust rates, and change deductibles quickly.
Considering the ongoing wildfires in Los Angeles, Hatt shared that the E&S market could play an increasingly essential role in providing wildfire insurance. However, he also anticipates a continued retreat of insurers from California, particularly in light of the rapid escalation of the Palisades fires within the past 24 hours, and despite Mercury’s recent re-entry.
In 2023, CoreLogic conducted a study in Paradise, California, to evaluate how mitigation measures, such as home hardening, zoning reforms, and external buffers, could reduce losses from wildfires. Jon Schneyer explained, “We found that if all homeowners implemented these individual mitigation practices, it could save homeowners about 53% on their insurance premiums. Mitigation not only reduces risk, but it also puts money back into homeowners’ pockets.”
In line with this, Joe Turcotte, EVP of insurance at First Onsite, shared several wildfire preparedness tips that brokers can pass on to clients in high-risk areas:
“Ultimately, there is nothing most homeowners can do to stop a wildfire from hitting their home, but these preparation steps can have a massive impact on how devastating it will be,” Turcotte said.
