Burnt trees and wind-blown dust from the Palisades Fire are seen at Will Rogers State Park in the Pacific Palisades neighborhood of Los Angeles, California, on January 15, 2025, with the city of Los Angeles in the background.
Apu Gomez | Getty Images
insurance Already soaring before this year massive wildfires in the Los Angeles area.
Now, analysts say, the numbers will rise even further as the Los Angeles wildfire threatens to become the costliest fire in U.S. history.
this insured loss could cost more than $20 billion, according to Estimates from JPMorgan Chase & Co. and Wells Fargo & Co.
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For California residents, the increased frequency and severity of natural disasters has had a direct impact on homeowners insurance costs, a trend that is now more likely to accelerate.
“In the short term, insurance regulators need to allow risk-based pricing,” Patrick Douville, vice president of global insurance and pension ratings at Morningstar, said in a statement. “This means premiums are likely to increase and affordability will The problem will persist, potentially affecting property values and leaving some homeowners without insurance.”
The California Department of Insurance also recently passed a rule paving the way for higher rates in exchange for increased coverage in wildfire-prone areas. In 2024, some insurance companies in the state will increase rates Up to 34%,according to san francisco chronicle.
While it’s too early to predict how the Southern California fires will directly impact profits, filing one fire claim can increase premiums by an average of 29%, and two claims can increase premiums by 60%, according to a 2024 analysis. insurance network.
Going forward, premiums will almost certainly rise as insurance companies try to cover costs, said Janet Ruiz, president of the Insurance Information Institute and the organization’s California representative.
“We have to charge enough premiums to cover claims,” she said.
But even for homeowners outside of California, worsening extreme weather means insurance rates are about to rise.
How disasters affect costs in other states
The rest of the country is also wondering: Will my insurance premiums increase? Ruiz said the simple answer is no.
“Homeowners and business owners in one state will not pay insurance premiums because of losses or disasters in other states,” she said.
Ruiz said because each state has an insurance department that regulates rates in that area, there are protections in place to prevent this from happening.
However, even though insurance premiums are extensively regulated at the state level, when insurance companies are unable to adjust rates in states with strict regulations, they do compensate by raising rates in states with less regulation—albeit with protections in place — leading to an “increasing disconnect” between insurance rates and risk,” according to Economist Papers 2021 Studied at Harvard Business School, Columbia Business School and the Federal Reserve.
“Our findings raise questions about the sustainability of current regulatory systems, particularly as natural disasters become more frequent or severe,” the authors write.
“Many insurance companies operate nationally, or at least in multiple states,” said Holden Lewis, mortgage and real estate expert at NerdWallet.
“They’re going to make up for it somewhere,” Lewis said.
After the wildfires, Michael Barrett, co-head of Barrett Insurance Agency in St. Johnsbury, Vermont, said that insurance regulations in the state are relatively loose, and he received many calls from customers asking whether their premiums would increase. – “And here’s the reality.” The real answer is yes,” he said.
“From an insurance perspective, the increase in natural disasters will impact the development of the insurance industry,” Barrett said.
Vermont is not immune its own extreme weather recent.
“We’ve had incredible rainfall and severe flooding,” Barrett said. “That’s something of great concern because we’re seeing these events increase reliance on insurance.”
Extreme weather a problem nationwide
What’s happening in California highlights what’s likely to happen in other parts of the country, in part because of increased climate issues.
Last year, 27 different natural disasters took their toll, from wildfires to winter storms $1 billion eachfound by the National Oceanic and Atmospheric Administration.
Nearly half of all homes in the United States are now at risk of severe or extreme damage from environmental threats, according to a separate report. Real Estate Agent Website Report.
Annual premiums are on the rise
According to statistics, home insurance rates increased by 33.8% between 2018 and 2023, and by 11.3% in 2023 alone, in part due to escalating weather-related risks. S&P Global Market Intelligence.
Published working papers National Bureau of Economic Research The study found that average premium increases would be as high as 33% between 2020 and 2023, with climate-impacted households facing annual premium increases of $700 by 2053.
According to statistics, the current national average cost of home insurance is $2,181 per year with a dwelling limit of $300,000, which is about $182 per month. bank interest rate.
Experts say how much each homeowner pays depends on the home and factors such as its city, state and proximity to areas prone to flooding, earthquakes or wildfires.
But collectively, all of these factors contribute to rising costs across the board, including Impact of extreme weather and Rising costs Repair or rebuild.
Rising maintenance costs are also a reason
Especially since the epidemic, reconstruction costs have increased significantly and continue to increase.
“The same house that might have cost $166 per square foot to rebuild now costs $300, and that’s if you don’t do a lot of decorating,” Barrett said.
“When people renew, they may just renew for the same maximum benefit,” NerdWallet’s Lewis said. “A lot of homeowners don’t even think about that.”
But as it becomes more expensive to repair damaged homes, this can leave your home underinsured, leaving you vulnerable to significant losses.
Homeowner may be underinsured
Lewis recommends homeowners ask their insurance agent or local contractor to get an up-to-date estimate of what it will cost to rebuild if their home is destroyed in a fire or other natural disaster.
“You want to be insured for this amount,” he explained.
You also want to have the right type of insurance.
For example, a recent report Consumer Financial Protection Bureau Hundreds of thousands of homeowners have been found to be potentially underinsured against flood risk. Because homeowners and renters insurance policies don’t cover flood damagewhich requires a separation Flood insurance policy.
The consumer watchdog said the risk of flooding in the mortgage market was “broader and more geographically dispersed than previously understood”.
In particular, homeowners near inland streams and rivers are less likely to have flood insurance or other financial resources to recover from flooding and “are most likely to suffer catastrophic losses.” The report is based on a sample of mortgage loan applications from 2018 to 2022.
“I encourage people every year, when you get your renewal notice, look at the rebuild amount and ask the contractor what the average cost per square foot of rebuild is,” Ruiz said. “People don’t pay that much attention to their insurance, But it’s important to understand whether you need more or less – most people need more.”
