Few places epitomize wealth like Hollywood in Los Angeles. It is precisely because of the luxury that this and other residential areas in the northern part of the metropolis symbolize that the wildfires in the Los Angeles area could become one of the most expensive natural disasters in US history.
The fires have claimed the lives of at least 24 people and destroyed property worth billions of dollars. They have threatened landmarks such as the Hollywood Sign and left several popular places in Los Angeles in ruins.
Losses in the tens of billions
Analysts at Goldman Sachs and JPMorgan expect the damage caused by the fire to exceed tens of billions. According to estimates, the value of the damage could exceed $50 billion. "We estimate that insurance claims from the event could exceed $20 billion. And even more if the fires are not contained," JPMorgan said.
Moody's expects insurance claims "to reach the billions, given the high value of homes and businesses in the affected areas". If accurate, the wildfires would be the costliest disaster in U.S. history for the insurance industry.
The "Camp Fire", which broke out in Butte County in Northern California in November 2018, is still the costliest wildfire disaster in U.S. history in terms of insurance claims. Insurance company Aon estimates the damage at nearly $13 billion. All four of the costliest fires in the U.S. have occurred in the past seven years. However, the final amounts of insurance claims for natural disasters could differ dramatically from initial estimates, as it is difficult to make accurate predictions while the disaster is still raging.
Up to $150 billion in damages?
Calculating disaster damages requires distinguishing between losses that are fully covered by insurance and broader economic losses that are not fully paid out.
AccuWeather, a private U.S. weather service that also measures losses from weather events, said that damages from the Los Angeles fires could ultimately reach between $135 billion and $150 billion, making them one of the costliest natural disasters in U.S. history. "Hurricane-force winds drove the flames through neighborhoods with multimillion-dollar homes. The devastation is horrific, and the economic damage is enormous," the weather company said.
According to official figures, between 9,000 and 10,000 properties have already been destroyed, including many corporate buildings. Infrastructure has also been severely damaged, further increasing the long-term cost of recovery.
Hurricanes have been the most devastating
The costliest natural disasters in the United States have always been hurricanes. The costliest is undoubtedly Hurricane Katrina, the devastating tropical storm of 2005 that caused enormous human casualties and severe economic damage, especially in the southern city of New Orleans. According to Aon, insurance claims from Hurricane Katrina alone are estimated at over $100 billion. dollars.
According to the National Oceanic and Atmospheric Administration, the total cost of damage from the disaster is nearly $200 billion, surpassing Hurricane Harvey (2017), Hurricane Yen (2022), Hurricane Maria (2017) and Hurricane Sandy (2012).
The entire insurance system could be rethought
The wildfires are expected to put a lot of pressure on California's already struggling home insurance sector. Some companies - such as Allstate and State Farm - recently stopped selling new home insurance policies in California. They blamed the authorities for increasing home insurance prices in the state due to legal restrictions. That has made it increasingly difficult for them to operate in the region, which has been hit by severe wildfires in recent years.
This has left many homeowners without private insurance. They have to rely on California's state insurance system. The insurance risk alone in the Pacific Palisades region, one of the hardest hit by the fires, is estimated to be around $6 billion. The large losses in the state insurance plan could force private insurers to step in, as the state plan contains provisions that require private insurers to pay for losses that the state cannot cover.
According to some analysts, the increasing number of wildfires in California may require a rethinking of the entire homeowners' insurance system in the most populous state in the United States. Climate change is increasing the frequency and extent of wildfires in California, making large cities and densely populated areas increasingly at risk.
Author: Arthur Sullivan