
California’s escalating wildfire risks are significantly reshaping its property insurance market, according to a recent Moody’s report. The Los Angeles County wildfires are expected to generate up to $30 billion in insured property losses, surpassing the 2018 Camp Fire. Uninsured losses will add billions more, emphasizing the financial toll of climate-related disasters.
Insurers face mounting pressures as regulatory changes, such as eased Proposition 103 restrictions, attempt to address the crisis. However, many companies have reduced policy renewals in high-risk areas, forcing residents and businesses to turn to the FAIR plan. This state-mandated insurer of last resort now covers $458 billion in liability, but concerns about its financial capacity remain, especially as its cash surplus and reinsurance thresholds appear insufficient to handle claims from major disasters.
Moody’s suggests reforms, including legislative proposals like Assembly Bill 226, which would allow California to issue bonds to address deficits in the FAIR plan. Additionally, Assembly Bill 234 proposes greater oversight of the plan’s governance. However, with premium hikes and potential assessments looming, Moody’s warns these measures may ease short-term market pressures but exacerbate long-term economic challenges.