The massive wildfires sweeping through the Los Angeles area are expected to result in astronomical damages. However, with insurance companies having scaled back their coverage across California in recent years, concerns are mounting about the difficulty of recovery for affected residents.

According to the Los Angeles Times on January 9, the current wildfires could become one of the costliest in U.S. history. Experts estimate the damages to be at least $50 billion, with some predicting the figure could realistically exceed $100 billion. In Pacific Palisades alone, one of the hardest-hit areas, over 1,000 homes have been completely destroyed, contributing to a total of more than 9,000 buildings lost in the fires.

Shockingly, many of the affected properties lack fire insurance.

This is due to private insurance companies significantly reducing their presence in California in recent years, citing the financial burden of covering increasing wildfire-related costs. State Farm General, California's largest private insurer, announced in March last year that it would not renew insurance policies for 72,000 homes and apartments statewide. This included many homes in Pacific Palisades, where 69% of State Farm policies were canceled. This trend of insurers withdrawing or refusing to renew policies in California has been ongoing for several years.

Climate change has fueled a sharp rise in wildfires across the western U.S., making it increasingly unprofitable for insurers to operate in California. According to the New York Times, wildfires in 2017 and 2018 cost insurance companies as much as their profits from the previous 25 years, prompting them to scale back fire coverage.

While California authorities have temporarily prohibited private insurers from canceling policies in wildfire-prone areas, these measures have not stopped insurers from leaving the market. State data indicates that the rate of policy cancellations for home insurance has risen annually since 2020, with Southern California counties recording the highest non-renewal rates in the nation.

As private insurers retreat, homeowners are turning to the state's FAIR Plan (www.cfpnet.com), a last-resort insurance program provided by the California government. While FAIR Plan policies are more expensive and offer less comprehensive coverage than private insurance, enrollment has surged from 200,000 policies in September 2020 to 450,000 as of September last year.

However, there are doubts about whether the FAIR Plan has the resources, systems, and personnel to cover the extensive damages caused by the LA wildfires. The plan offers coverage of up to $3 million for property damage, but critics say it lacks the scope and scale of private insurers, particularly for claims involving personal injuries or extensive property loss.

In response to concerns, the FAIR Plan released a statement emphasizing that it has a robust payment mechanism, including reinsurance, to meet all valid claims. However, it noted that it is too early to estimate the total claims from the wildfires.

Experts stress the importance of meticulous preparation to ensure compensation for valuables beyond basic property coverage. They recommend documenting jewelry, artwork, antiques, and other valuables with photographs, purchase receipts, and appraisals, and storing these records offsite or in digital formats such as smartphones or cloud storage. Homeowners should also review their coverage limits with their insurance agents to understand exactly what is covered in the event of a fire.

— Reporter: Jo Hwandong

<Hwandong Cho>