LA wildfires could be 'costliest ever' in the US

The devastating wildfires which have hit Los Angeles and other parts of southern California could be one of the costliest natural disasters in history. It is also wreaking havoc for home insurers, already struggling.

Few places embody wealth and glamor quite like the Hollywood Hills of Los Angeles. The exclusivity of that neighborhood is one of the reasons why the wildfires which have struck the wider Los Angeles area this week could become one of the costliest natural disasters in US history.

The wildfires have left at least ten people dead and have destroyed tens of billions of dollars' worth of property already. They even threatened iconic landmarks such as the Hollywood sign, and have reduced several well-known LA locations and buildings to ash.

JPMorgan analysts said losses from the fire would cross the tens of billions of dollars' mark.

"Expectations of economic losses stemming from the fires have more than doubled since yesterday  [January 9] to closer to $50 billion [€48.55 billion], and we estimate that insured losses from the event could exceed $20 billion (and even more if the fires are not controlled)," the financial services firm told its clients in a note.

The ratings agency Moody's says it expects insured losses to "run in the billions of dollars given the high value of homes and businesses in the impacted areas."

If those figures are correct, it would make the wildfires the most expensive wildfire disaster in US history by insured losses (see graphic), eclipsing the costs of other recent disasters in California and Hawaii.

To date, the Camp Fire which struck Northern California's Butte County in November 2018, is the costliest in US history, by insured losses. The insurance firm Aon estimates its losses at just under $13 billion. Notably, the top four costliest US wildfires have all occurred in the past seven years.

However, the final tallies of insurance losses from natural disasters can vary dramatically from initial estimates, as it is difficult to make accurate predictions when the disaster is ongoing.

'One of the costliest wildfire disasters in modern US history'

There is also the distinction between insured losses — the assessed monetary amount of actual damages and losses covered by insurance — and wider economic damage, not all of which is covered by insurance.

The private US weather service AccuWeather, which also measures the costs of weather events, says damage from the LA wildfires could ultimately hit between $135 billion and $150 billion, which would make it one of the costliest natural disasters in US history.

"These fast-moving, wind-driven infernos have created one of the costliest wildfire disasters in modern US history," AccuWeather Chief Meteorologist Jonathan Porter said on the company's website. "Hurricane-force winds sent flames ripping through neighborhoods filled with multi-million-dollar homes. The devastation left behind is heartbreaking and the economic toll is staggering."

Officials say between 9,000 and 10,000 buildings have already been destroyed, including many businesses. There is also significant damage to infrastructure, adding to the longer-term costs of reconstruction

Hurricanes do the most damage

In terms of the costliest US natural disasters ever, the most expensive to date were all hurricane events. The most expensive by far was Hurricane Katrina, the devastating tropical cyclone of 2005 which led to massive loss of life and economic damage, particularly in the city of New Orleans.

The estimated insured losses alone for Hurricane Katrina were more than $100 billion, according to Aon.

According to the National Oceanic and Atmospheric Administration (see graphic), its total costs were just shy of $200 billion, ahead of Hurricane Harvey (2017), Hurricane Ian (2022), Hurricane Maria  (2017) and Hurricane Sandy (2012).

Fires heap pressure on California home insurance

The wildfires are going to put major pressure on California's already embattled home insurance sector.

Firms in the area are braced for tens of billions of dollars' worth of losses, including companies such as Chubb and Travelers, which typically specialize in providing insurance for expensive, exclusive properties.

Some companies, such as Allstate and State Farm, recently stopped selling new home insurance in the state. They blamed regulatory caps on home insurance price rises in California, which they say make it increasingly difficult to operate in a state that has been hit in recent years by many severe wildfires.

That has left many homeowners without private insurance and reliant on California's public insurance system, known as Fair Plan. Fair Plan is estimated to have exposure of around $6 billion in the exclusive Pacific Palisades area alone, one of the areas worst affected by the fires.

High losses for Fair Plan could force private insurers to step in, as the public plan has provisions for private insurers to pay for the claims it can't meet.

The growing prevalence of wildfires in California could force a rethink of the state's entire home insurance system, some analysts have suggested. Climate change has intensified the wildfire season in the state, with major cities and high density areas increasingly threatened.

Edited by: Uwe Hessler