The next casualty of the epic Los Angeles fires, appropriately, will be the casualty industry. What has gotten immediate press attention is the impact of the fires on local homeowners and on the California state insurer of last resort, the FAIR Plan, which only has about $700 million in cash. The Pacific Palisades alone has nearly $6 billion in insurance exposure, and the total L.A. losses are projected at $20 billion to over $50 billion counting spillover losses to economic activity.
In addition, insurance companies have been raising rates, canceling or non-renewing policies, or pulling out of the state entirely. There will be massive pressure on the state to make up for these gaps one way or another, both for homeowners who have suffered uninsured losses and for others whose insurance is becoming unavailable or unaffordable.
But that is only the beginning of the story. Basically, there is a massive disconnect between what is financially prudent and what is politically possible. Paradoxically, insurers haven’t been raising rates enough to cover risks.
Robert Kuttner
Read full article by Robert Kuttner in The American Prospect
