LA wildfires among costliest in US history

Wildfires in Los Angeles are projected to become one of the most devastating fires in U.S. history, with estimated losses already exceeding $135 billion (approximately £109.7 billion). Private forecasting firm Accuweather initially estimates that losses will range between $135 billion and $150 billion, as the fires rage through some of the most expensive real estate in the U.S.

The insurance industry is also bracing for a major hit, with analysts at companies such as Morningstar and JPMorgan Chase predicting insurance losses will surpass $8 billion. Fire departments have stated that the Palisades fire has destroyed over 5,300 structures, while the Eaton fire has destroyed over 5,000. The scope of the losses continues to expand as authorities are still working to contain the blazes.

AccuWeather’s chief meteorologist, Jonathan Porter, stated, “These fast-moving, wind-driven fires have already created one of the most costly wildfire disasters in modern U.S. history.” According to insurance giant Aon, the 2018 fire near Paradise, Northern California, is currently the most costly disaster in terms of insured losses, at approximately $12.5 billion. That fire, known as the “Camp Fire,” resulted in 85 fatalities and displaced more than 50,000 people.

Aon stated that due to the high property values in the area affected by the current fires, it is likely to become one of the top five most costly wildfires on their list. The overall losses will be even greater if uninsured properties are included. Mr. Porter said that even after the situation is brought under control, these events could have long-term health and tourism impacts. This is also bad news for an insurance industry already in crisis.

In the U.S., homeowners with mortgages are typically required by banks to purchase property insurance. However, in the face of increasing risks from natural disasters such as fires, floods, and hurricanes, insurance companies have been raising prices and even outright canceling policies. As companies stop providing coverage, more people are turning to state-provided home insurance plans, which are often more expensive but offer less coverage. In California, the number of policies provided through the state’s Fair Plan has more than doubled since 2020, from around 200,000 to over 450,000 as of last September. According to the plan’s data, the fire-affected areas are among the highest insured areas, and the plan has previously warned that its financial stability is at risk.

Dennis Laplume, a senior analyst at Moody’s Ratings, stated that the fires will have a “broad negative impact” on the state's wider insurance market. She said, “Increased restoration costs could drive up premiums and potentially reduce the availability of property insurance.” She also added that the state is also facing the possibility of long-term damage to property values and strain on public finances.