Credit: David Swanson / AFP / Getty
LOS ANGELES, CALIFORNIA — Wednesday’s firestorm in a wealthy area of Los Angeles could be the final straw that breaks California’s insurance market.
The state’s insurance market has been teetering on the edge of insolvency for years thanks to catastrophic wildfires that have driven many insurers to stop writing new policies and drop existing ones. Wednesday’s wind-driven wildfires in a part of Los Angeles packed with multimillion-dollar homes could accelerate its collapse.
“It’s obviously going to be bad,” said Rep. Brad Sherman, the Democrat who represents the neighborhood between Malibu and Santa Monica where the Palisades Fire — one of six burning uncontained across the region — had destroyed more than 1,000 buildings as of Wednesday afternoon. “We’ve already seen big increases. And we’ve seen these increases not only in houses that are close to the brush, but in areas where you’re surrounded by other homes.”
President-elect Donald Trump called […]
The article’s headline makes it appear as if this a question. It should be a statement of fact. This will be true of California and Florida as well. This is a good thing as insurance costs are the financial measure of risk. Now I’ve asked in the past, in this forum, how will the wealth try to game the system? This article provides one answer. As it states:
“The state’s insurer of last resort, known as the FAIR Plan, predicted that it would be able to pay out. “We are aware of misinformation being posted online regarding the FAIR Plan’s ability to pay claims,” spokesperson Hilary McLean said in a statement on behalf of the FAIR Plan. “It is too early to provide loss estimates as claims are just beginning to be submitted and processed,” McLean wrote, noting the plan was prepared for this kind of a disaster and has payment mechanisms including reinsurance, to cover claims.”
And what does reinsurance mean? Well it means that everyone’s rates rise to subsidize the costs of the risk takers who bought and built where they should not have. Great scam isn’t it? To make matters worse California mandated that carriers had to sell types of insurance that they didn’t want to, namely fire insurance, to keep the rest of their California business. We are about to see the limits of power, and the hubris that is the California legislature. Insurance companies now have a clear message: pay out, and then get out. What will the wealthy do then, when their campaign dollars fail to coerce the market. Will they attempt to make this a Federal problem? You bet they will. Bank on it.