Here’s the latest
The cost of wildfires ravaging swaths of Los Angeles keeps rising, with new estimates of the total losses for the insurance industry now seen as high as $40 billion.
The fresh figure Jan. 14 from Keefe Bruyette & Woods analysts is double their rough initial estimate from just a day earlier. In a note to clients, they cited “continuing upside insured loss potential” as the fires across the region remain largely uncontrolled.
Their most optimistic scenario implies insured losses of $25 billion.
Who wears the cost?
Home insurance providers will bear the brunt of the cost. Allstate Corp., Chubb Ltd., American International Group (AIG) and Travelers Cos are the most exposed among the firms covered by Wells Fargo analysts, according to a note the bank sent to clients on January 12.
Reference: Insurance Journal (USA)
The financial strain from these disasters is likely to lead to increased insurance premiums worldwide. For instance, Australian farmers are already experiencing surges in insurance costs due to the global reinsurance markets response to such events.
The frequency and severity of natural disasters exacerbated by climate change are challenging the stability of insurance markets. In California major insurers have withdrawn from high-risk areas leading to a coverage crisis for residents. The wildfires in 2025 will, in all probability, sharpen this trend.
In Summary
While the global reinsurance market is resilient, the escalating frequency and severity of natural disasters like the California wildfires are exerting pressure on the industry. This situation necessitates adjustments in risk assessment, pricing strategies, and is likely to prompt a re-evaluation of coverage in high-risk regions like cyclone prone areas.
