The LA Fires Burned Homes. The Data Show Insurers Saw the Risks

https://www.barrons.com/articles/la-fires-home-insurance-risks-847653a9

by Bostonian • 1 year ago

38 80 1 year ago

Bostonian• 1 year ago

stuaxo• 1 year ago

What's going to happen with insurance and what's insurable if the new US gov gets their way with removing regulations and protections?

mgh954• 1 year ago

Perhaps the more pertinent question is what if the US gov doesn't recognize the risk and allow insurers to raise rates. A now significant portion of the problem is the fact that California's FAIR plan will potentially be insolvent. In this case, the market was correct, not the gov.

Dalewyn5• 1 year ago

what if the US gov doesn't recognize the risk and allow insurers to raise rates.

I'm not sure I follow: Isn't the entire point of raising rates (I assume you mean raising insurance premiums) to compensate for higher risk?

orangepanda• 1 year ago

Is it truly a problem if families move away from areas of high-risk natural disasters?

anonzzzies2• 1 year ago

The number of those areas will grow though, so there will be less places to move to.

thih92• 1 year ago

Depends. From a global point of view this might be a net positive. For a family that has to move it's a life altering problem, sometimes impossible to address because of financial, emotional, or other toll.

ben_w5• 1 year ago

Given all the political noise about "immigrants", "refugees", and "asylum seekers" over the years*, my irony sense is tingling.

(I don't know your personal political opinions here, this irony is blurred over the entire political landscape).

* not just the current noise from Trump, the 20 years in the UK before I moved to Germany

femiagbabiaka2• 1 year ago

Feels tangential because a lot of these regions are borderline uninsurable right now. This is a huge problem in FL and CA.

refurb2• 1 year ago

Nothing is uninsurable for the right premium.

And there is plenty that can be done to reduce the fire risk to bring premiums down.

CA is hardly the first place to have a high fire risk.

baq• 1 year ago

In aggregate you'll see what the market thinks about living in high risk places.

From a single family perspective, there will be a lot of tragic stories of people who are in an impossible situation with regards to moving.

amluto2• 1 year ago

Which regulation? Arguably the CA insurance market is broken because of poorly considered price regulation. On the other hand, regulation to help ensure the solvency of insurers seems like a good thing.

buran773• 1 year ago

regulation to help ensure the solvency of insurers seems like a good thing

Seems like a good thing for the insurers if the state takes only the risks. It means operating the business at the very limit of how much profit you can extract from it knowing failure is cost free. Safety nets only take the beating and the falls. So if you're going to be the safety net, you're probably better served by running the business yourself.

I get helping out up to a ceiling but not unlimited liability from the state, guaranteeing an insurer is always solvent. How do you keep bad actors out of the "state guarantees you stay solvent" business?

bdavbdav3• 1 year ago

Unusually, regulation is the issue - instead of raising rates (prohibited beyond a certain amount in CA), they just pull out.

Ferret74465• 1 year ago

Unusually? Regulation is the issue more often than not (which the astute reader will understand to mean that sometimes regulation is good), and much more so when it involves any kind of price fixing.

flanked-evergl• 1 year ago

They saw the risk and withdrew: https://www.foxbusiness.com/lifestyle/california-insurance-c...

Several insurance companies have either fled California, stopped writing new policies or otherwise reduced their exposure in the Golden State, citing business risks amid rising replacement costs and the inability to adequately raise premiums.

bdavbdav3• 1 year ago

This is madness - I get preventing huge premium jumps (although given that it’s a competitive landscape and many do jump ship between providers year on year, I suspect it is protecting largely the less financially astute), but if the upshot is that providers end up withdrawing cover, then that’s an objectively worse situation.

CarRamrod• 1 year ago

This is madness

THIS

CALIFORNIA!

zinekeller• 1 year ago

If they could they would probably would, but California prevents them from even choosing to do that.

raffraffraff• 1 year ago

While law provides a framework for contracts, regulations, and dispute resolution, insurance is based on actual risk based on historical data, industry trends, and on-site evaluations. No matter what the law says in the short term, we must acknowledge that reality is different. Insurance is more evidence based than law.

And very generally, if insurance won't cover it, you can't build it or make a business out of it.

I see this as the banal way that we will inevitably deal with the aftermath of ignoring climate change.

JumpCrisscross4• 1 year ago

if insurance won't cover it, you can't build it or make a business out of it

There are quite a few parts of the country where this isn't true. In some it recently became so. Where it's been true longer, land values are lower and folks build cheaper. (Go back further and most structures weren't built to be durable over decades.)

pjc504• 1 year ago

If you want to know the probability distribution of the future, ask an actuary.

rjbwork• 1 year ago

I've always loved this bit from SlateStarCodex (go to section VI):

https://slatestarcodex.com/2020/03/30/legal-systems-very-dif...

londons_explore3• 1 year ago

What is ironic, is that those with insurance probably will get a full payout for the entire value of their home.

But those who decided to build out of fireproof materials and install a sprinkler system, now have an almost worthless home, since it's now located in a barren wasteland, and the insurance won't be paying out since your house wasn't burned down.

There is an absolute incentive to make sure that if any disaster destroys the region, that you aren't the only one to survive.

pjc504• 1 year ago

How many of those actually survived? Must be some interesting photos of isolated houses among charcoal plains.

londons_explore3• 1 year ago

Yes: https://nypost.com/wp-content/uploads/sites/2/2025/01/comedi...

leoedin• 1 year ago

I don't think that's really true. Most of the value of homes destroyed in LA was in the location, not the building. Insurance will pay out on the cost of reconstruction - but in a lot of cases that's probably 10% of the "value" of the home pre-fire.

Equally, the land hasn't moved. If people wanted to live in the LA hills before the fires, they still will now. Certainly the prospect of a fire will reduce the value, but it won't make it zero.

saurik• 1 year ago

I think the point is that this might be true in the long term, but, in the short or even in the medium term, it doesn't at all seem strange to me that living in the LA hills is no longer attractive if the entire region is just a bunch of burned down houses.

aucisson_masque3• 1 year ago

What fireproof material are you speaking about ?

There are very little materials able to prevent a house from getting burned by wildfire. In my experience, unless you remove all the house opening and make the wall and roof out of concrete you are doomed because heat will find a way in and fire will take from the inside.

londons_explore3• 1 year ago

For the LA fires, houses had to survive embers falling on their roofs for many hours, and intense radiant heat for only 10's of minutes.

Tile roofs and brick walls survive both easily (standard european construction).

Timber frame, plastic/wood on the outside, asphalt roof shingles, etc would obviously not survive. Which is why a few houses survived.

ben_w5• 1 year ago

unless you remove all the house opening and make the wall and roof out of concrete you are doomed

I think you've answered your own question there.

Concrete is cheap. My house is made from it. Also I have metal shutters on the outside of the windows.

But also, from what I've seen, materials are not the primary cost of contstruction. If you took this plot of land, looks like 20 meters by 40 meters to me, the street view photo from before the fire looks like the building was 3 stories including the garage so let's say 10m tall: https://maps.app.goo.gl/XydopyQorcmgscPD8?g_st=com.google.ma...

8000 cubic meters to fill the entire volume with solid concrete; I think concrete costs $80-$150 per cubic meter for a total of about $640k-$1.2M, while the pre-fire sale prices for that zip code were about $3.8M: https://www.realtor.com/realestateandhomes-search/90272/over...

Ferret74465• 1 year ago

If you had "decided to build out of fireproof materials and install a sprinkler system" then you would have paid significantly lower premiums on your insurance, and the home is not worthless unless you decide to sell it soon.

The price drop might be a bonus due to the insane CA property taxes.

JumpCrisscross4• 1 year ago

Burying power lines is expensive [1]. But not as expensive as literally this one fire [2].

Blaming the insurers is trying to financially engineer one's way out of a physical problem.

[1] https://www.renewableenergyworld.com/power-grid/outage-manag...

[2] https://www.nytimes.com/2025/01/15/business/economy/los-ange...

danaris5• 1 year ago

But while bad/old power lines may have been what literally sparked this fire, they're not the root cause. Burying them will improve things (and is probably a good idea—though there's also the concern of earthquakes shearing through buried lines), but as long as the area remains bone-dry, any spark will cause the same outcome, and sparks can come from a wide variety of sources.

mppm• 1 year ago

In this debate, it's worth remembering that there are two separate risks that are worth insuring against: 1) the risk of losing your home in a wildfire or natural disaster and 2) this risk and/or expected damage going up over time. I.e. the risk that the annualized probability of incurring major damage will go up, say, a decade from now, in the area where you happened to purchase your home. This can be due to environmental conditions, urban mismanagement, crime rates, etc.

A lot of people seem to automatically expect to be insured against the second risk when they insure themselves against the first, but it is not obvious to me that this should be so. At the very least, that should be written explicitly in the contract and priced accordingly. But I'm also not sure it is actually possible for an insurance company to reasonably price it, as this is not the kind of predictable, reproducible risk that insurance is usually well suited for.

JumpCrisscross4• 1 year ago

there are two separate risks that are worth insuring against: 1) the risk of losing your home in a wildfire or natural disaster and 2) this risk and/or expected damage going up over time

You're comparing risks and costs. The first is stochastic. The second can be almost completely controlled by renewal and rate-increase frequencies as well as coverage limits.

aucisson_masque3• 1 year ago

“They accept that hurricanes are a fact of life in Florida,” she says. “They just work around them and prepare for them rather than avoiding the area.”

How do you work around wildfire ? I guess you could make a bunker like house, all in concrete with very little window.

Rich LA properties are going to look like Albania lol

For reference Albania has thousands of bunkers all around its countryside.

JumpCrisscross4• 1 year ago

How do you work around wildfire ?

Fireproofing. It isn't totally a coïncidence that the fire stopped at the urban boundary. Urban fires used to be common. We made them rare because our cities are productive enough to be worth fireproofing.

Ferret74465• 1 year ago

And controlled burns. And making sure your reservoirs are actually functional.

The LA Fires Burned Homes. The Data Show Insurers Saw the Risks

Related Stories