The LA Fires Burned Homes. The Data Show Insurers Saw the Risks
56 comments
·February 1, 2025raffraffraff
JumpCrisscross
> 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.)
pjc50
If you want to know the probability distribution of the future, ask an actuary.
mppm
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.
JumpCrisscross
> 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.
flanked-evergl
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.
bdavbdav
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.
zinekeller
If they could they would probably would, but California prevents them from even choosing to do that.
null
CarRamrod
>This is madness
THIS
IS
CALIFORNIA!
draw_down
[dead]
londons_explore
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.
leoedin
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.
aucisson_masque
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.
ben_w
> 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...
londons_explore
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.
pjc50
How many of those actually survived? Must be some interesting photos of isolated houses among charcoal plains.
aucisson_masque
> “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.
JumpCrisscross
> 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.
stuaxo
What's going to happen with insurance and what's insurable if the new US gov gets their way with removing regulations and protections?
mgh95
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.
Dalewyn
>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?
3D30497420
The point of raising rates is to compensate for higher risk. However that is politically very unpopular, so voters put pressure on politicians to prevent insurers from adequately pricing risk through premiums.
Also, I don't think the government is predominantly to blame. I'd wager plenty of people in local, state, federal governments know that these locations need to be expensive to insure or are basically uninsurable. However, voters refuse to accept the reality of increasing risks due climate change, urban sprawl, and other factors. Politicians lack the incentive (or spine) to be honest about these risks. And anyone else in government, especially scientists, that do state the risks plainly are either ignored, censored, or fired.
And its only going to get worse. As more companies pull out, governments will step in (pressured by voters) to be the insurers of last resort. This is already true in Florida (see: https://en.wikipedia.org/wiki/Citizens_Property_Insurance_Co...) and (I believe) California. At some point, natural disasters will probably cause these government insurers to go (basically) bankrupt since they're insuring rich people's million dollar houses on Florida's coast and in California forests.
Edit: I'd also wager companies are more than happy to price-gouge in situations like this too. I expect this is both premiums being insufficiently high and companies seeing profit opportunities.
logicchains
Insurers in California were forbidden from raising rates to compensate for the fire risk, so they instead chose to pull out.
orangepanda
Is it truly a problem if families move away from areas of high-risk natural disasters?
anonzzzies
The number of those areas will grow though, so there will be less places to move to.
tossandthrow
The American populous has decided that this is not the case - drill, baby drill.
In the current landscape I think very few people on a global scale has any sympathy with Americans being affected by the changing climate.
vasco
We could put all of humanity in the space of Texas at the density of Manhattan, so I don't think we lack space.
entropi
I would argue it is a problem that can't be solved by means of insurance.
thih9
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_w
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
pjc50
I'm sure the US won't introduce inter-state hukou this term. Yet.
(the Chinese system of internal migration control that prevented everyone from migrating to the cities immediately)
bdavbdav
Unusually, regulation is the issue - instead of raising rates (prohibited beyond a certain amount in CA), they just pull out.
amluto
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.
buran77
> 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?
bvan
The state doesn’t take unlimited liability
baq
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.
femiagbabiaka
Feels tangential because a lot of these regions are borderline uninsurable right now. This is a huge problem in FL and CA.
refurb
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.
michaelt
> Nothing is uninsurable for the right premium.
Can a nuclear plant operator get insurance against the costs of a nuclear meltdown?
The costs of the Fukushima meltdown are reportedly $200 billion. Offering a policy with a downside that big would basically be gambling the entire company.
perfmode
Is this true in an absolute sense?
There are impossibility proofs in many domains and I wouldn’t be surprised to discover that there are certain conditions that create circumstances that aren’t insurable.
Asking sincerely
femiagbabiaka
> Nothing is uninsurable for the right premium.
Of course, but there are some markets that are unsustainable from a cost perspective, to the consumer and the provider.
> And there is plenty that can be done to reduce the fire risk to bring premiums down.
Agreed, this should be the priority -- really my point is that it has nothing to do with regulation or lack of, not that I would be unsupportive of requiring that all homes in high-risk areas be built up to a more strict code.
JumpCrisscross
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...
rjbwork
I've always loved this bit from SlateStarCodex (go to section VI):
https://slatestarcodex.com/2020/03/30/legal-systems-very-dif...
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.