The devastating wildfires in Los Angeles this past week have caused billions of dollars worth of damage and look likely to lead to insurers pulling away from the area completely. Early estimations suggest damage could reach $30bn (Wells Fargo and Goldman Sachs), and that is with many people deeply unsatisfied with the response of insurance companies.
GlobalData’s 2024 Emerging Trends Insurance Consumer Survey found that many American consumers had already felt the impact of severe weather on their annual household insurance renewals. One in five (20.5%) consumers from the US had not been offered a household insurance policy at renewal. Similarly, 19.3% of consumers had been refused a household insurance policy when applying for a new one—this is compared to 13.3% for the global average in the survey (11 countries). It also found that 42.4% of consumers had been contacted by their insurer with ways to mitigate the impact of a severe weather event if it were to occur. This shows that insurers are already engaged in this area, though they will need to increase efforts here after what is happening in LA.
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One resolution may involve government initiatives. That could be in the form of the US government subsidising premiums in high-risk areas while forcing insurers to continue offering policies. This would mean the government would share the risk with insurers, which could allow properties in such areas to remain insurable. This is similar to Flood Re in the UK, where the government helps insurance companies cover houses in areas at high risk of flooding. This would reduce the impact on premiums across the US and would also stop a potentially significant property crash in LA if large areas become uninsurable. There are some state-backed policies for those who have been rejected by insurers, but they have a limited budget.
While we do not know for sure yet what caused these particular fires, it is clear that severe weather events are having more and more of an impact on people’s lives around the world. This is extremely damaging to insurers both in terms of payouts and often in terms of their reputation too, as they are often seen to be avoiding or delaying payouts in some of these instances. This emphasises the need for insurers to take an active role in the fight against both climate change but also in identifying imminent weather events and having practices in place to help reduce their impact.
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By GlobalData
