Farmers Insurance has deployed its Catastrophe Response Team in Southern California.
The Woodland Hills-based carrier rolled up in a coach bus Friday and set up shop at the Home Depot at 1200 Flower Street in Burbank, along with three other locations across Los Angeles County.
The claims processing command centers are an eerie leitmotif of disaster in areas of the state the industry calls the “wildland-urban interface.”
Farmers’ sites are run by trained staff and local brokers who field questions from policyholders, help them initiate claims and — if the mood strikes — trot out a therapy dog who will nuzzle up against anyone who happens by.
“If you have other needs — water, masks — we can accommodate you as well,” said Luis de Angelis, L.A. district manager for Farmers, in a promotional post on social media.
It’s all part of an emergency response that Farmers and other carriers have developed to help maintain a sense of order in the wake of disaster.
And this one may be the costliest ever in California’s history, with vast tracts of densely developed land overrun by fire in Pacific Palisades, Altadena and Pasadena. Some 12,000 structures have been destroyed in the foothills of the Santa Monica Mountains and in the San Gabriel range to the east, according to fire officials’ latest estimate.
Risk calculations
Behind the scenes, the state’s insurance market is in turmoil, and that will eventually hit policyholders in the form of higher premiums and more owners turning to the undercapitalized California FAIR Plan, the state’s insurer of last resort, analysts say.
“Wildfires were never a factor when people were providing coverage in California until about 2012,” said Emmet Hollins, principal at consulting firm Symphony Risk Solutions. “Then they started popping up. After around 2015, they became an issue.”
Covered losses and expenses from wildfires in Northern California in 2017 and 2018 surpassed what carriers made in premiums in those years, tipping insurers into the red. On average, insurers paid out $1.08 for every dollar they earned during the period, according to the Insurance Information Institute, a national industry association.
Carriers began to turn their backs on California in the following years. Chubb CEO Evan Greenberg led the charge in 2021, telling investors in an earnings call the company was reducing its footprint because “in the state of California we cannot charge an adequate price for the risk.”
FAIR’s exposure has since climbed precipitously, reaching $458.1 billion in written premiums last year.
“The math doesn’t work out,” Hollins said. “People forget that insurance carriers are for-profit. They’re not looking to jump in front of a moving train. The carriers love predictability.”
But wildfire is the categorical opposite. And until now, Southern California has been spared the worst of the state’s infernos.
“No numbers”
Insurers say it will take weeks to get an accurate picture of their total exposure to the fires burning in L.A. County, but Wells Fargo analysts estimated on Monday total insured losses across the market will likely exceed $30 billion.
If accurate, that would cover a comparatively small portion of the total losses Angelenos have incurred — something in the order of $250 billion, according to forecaster Accuweather’s latest prediction.
Farmers’ parent company, Zurich Insurance Group, saw its stock dip about 7 percent last week as entire communities burned. But the carrier is actually less exposed to the losses than some.
Mercury, Chubb, AIG, Travelers and Allstate will take the worst hit from insured losses in homeowners’ coverage over the past week, J.P. Morgan’s Jimmy Bhullar predicted in a Jan. 10 research report.
Mercury — which is headquartered in Los Angeles — announced last week it would surpass the $150 million threshold that triggers its reinsurance program, but a spokesperson for the company declined to comment on the exact toll it projects so far.
“We have no numbers because the event is still fluid and unfolding,” the spokesperson wrote in an email. “The entire Mercury team’s priority is laser focused on our policyholders.”
The final tally of the Los Angeles fires might be that “claims costs for many insurers could exceed their market shares in the state,” Bhullar’s report stated.
And every private carrier that does business in California may be on the hook for an assessment that’s almost certain to occur if the FAIR Plan exhausts its reserves and maxes out its $2.5 billion reinsurance plan. That would raise premiums across the market, which the state’s Department of Insurance fears could put homeownership out of reach for some potential buyers.
Busy adjusters
Just last month, Insurance Commissioner Ricardo Lara permitted carriers to use catastrophe modeling and factor the cost of reinsurance into their prices — something they have long lobbied for, Hollins said. But carriers will also be required to cover high-risk areas in proportion to their overall share of the market under the new regulations.
Those changes have already spurred some insurance companies to offer more coverage in California, according to reinsurance giant Munich RE.
But there are new dynamics at play now. Munich is especially keeping an eye on the state’s growing population in high-risk areas, the rising cost of construction and the “challenging” reinsurance market, according to a spokesperson for the company.
And the fact remains that there are 1.3 million homes at risk for extreme wildfires in California, more than any other state by a long shot, according to an analysis by Triple-I.
For comparison, Colorado ranks second in this grim category, with 332,716 such homes.
That means more Californians may see carriers setting up mobile command centers in their neighborhoods after a fire.
For now, most homeowners and landlords in Pacific Palisades, Altadena and Pasadena whose property has been destroyed are in a holding pattern as they wait for first responders to clear their neighborhoods of myriad hazards, like downed wires and smoldering hot spots.
“The insurance carriers themselves may come out and say how much claim damage this fire resulted in, but it’s after the fact,” Hollins said.
“It might take days or weeks before an adjuster can get out there — and adjusters are thorough and thoughtful people. It will take longer than normal because of the amount of claims.”