Additional Coverage:
- California’s insurer of last resort has potential exposure to LA wildfires of nearly $5 billion and reinsurance of $5.78 billion (newsbreak.com)
Wildfires Devastate LA, Exposing Insurance Crisis
The California FAIR Plan, a last-resort insurer, has received 3,600 claims from wildfires that ravaged the Los Angeles area. These claims have a potential exposure of nearly $5 billion.
FAIR covers 22% of structures in the Palisades fire zone, with a potential exposure of over $4 billion. It also covers 12% of structures in the Eaton fire zone, with an exposure of $775 million.
FAIR operates on a “cash-in, cash-out” basis and has $377 million in reserves. It can access reinsurance once it pays the first $900 million in claims. However, it may face a cash shortfall before accessing reinsurance.
FAIR can ask insurance companies to make up for any financing gaps, which could lead to surcharges for policyholders. California homeowners could face surcharges of $1,000 to $3,700.
The LA wildfires are estimated to cause $250 billion-$275 billion in damage. This disaster highlights the growing insurance crisis in California, as private insurers have been reducing their exposure to natural disasters, forcing more homeowners to rely on FAIR.