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Major insurers face billions of dollars in losses from the Los Angeles wildfires, they said this week, despite dropping clients in California before the catastrophe.
AIG and Allstate are among the national insurers that warned of losses even after they cut their exposure to the state in recent years.
AIG expects losses of about $500mn from the firestorms, which destroyed more than 16,000 homes and businesses in January, the New York-based insurer said on Tuesday. That comes after a sharp pullback in 2022, when the company stopped offering new policies to most homeowners in California to focus on businesses and the richest residents of the state.
Travelers also on Tuesday said it projected $1.7bn in losses from the fires, while Zurich-based Chubb last month pegged its losses at $1.5bn. Allstate, which last week announced $1.1bn in losses, said it has more than halved its California market share since 2008.
Risk modellers say the wildfires will cost the global insurance industry about $40bn out of more than $250bn in total losses.
The widespread scope of the losses underscores the scale of the crisis in California’s insurance market, where insurers have fled as a result of tight consumer regulations and more intense natural disasters.
Insurers in recent weeks stressed they had avoided heftier payouts by paring back policies in risky areas.
“In the area where the wildfires occurred, our exposure has been reduced by over 50 per cent,” Chubb chief executive Evan Greenberg told investors last month. “We’re not going to write insurance where we cannot achieve a reasonable risk-adjusted return.”
Insurers say California’s consumer protection law has become too burdensome, preventing them from earning sufficient profits to operate in the state — ultimately leaving residents more exposed.
The average homeowners’ premium in California rose just 2.6 per cent each year between 2016 and 2023, after accounting for construction inflation, according to the reinsurance arm of UK broker Howden.
The number of policies written by California’s “admitted” insurers — which must seek approval from the state insurance department to raise rates — fell by 340,000 from 2019 to 2023, Howden’s report showed.
AIG’s roughly $500mn loss stems partly from the lightly-regulated “non-admitted” market, which is not subject to the insurance commissioner’s price regulation.
State Farm, California’s largest private insurer, is seeking an emergency 22 per cent rate increase from the state’s insurance regulator to help offset the bill from the January fires.
The California Fair Plan, a pool of private insurance set up by the state, will collect $1bn from insurers doing business in the state, the insurance commissioner said on Tuesday. Insurers, in turn, are allowed to pass on half of that assessment to their customers.
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