Allstate said this week that it expects to lose $1.1 billion due to the Los Angeles fires, making it the second major insurer to announce the financial impact of the country’s single most costly blaze.
The Northbrook, Ill., company said the figure represents its losses on a pre-tax basis and after deducting payments it received from reinsurance. Despite the size of the hit, the company‘s fourth quarter net income grew 30% to $1.9 billion.
Allstate said the minimal impact on its financial performance reflected its “comprehensive reinsurance program” and its decision starting in 2007 to reduce its market share. Allstate had a 5.8% share of the state’s homeowners market in 2023, making it the sixth largest carrier. Insurers acquire reinsurance typically from other larger insurers in order to limit their payouts during huge wildfires and other catastrophic events.
The company also received approval last year for an average 34% rate increase starting in November.
Last week, another larger insurer, Chubb Ltd., estimated its losses from the fire will total about $1.5 billion, with the financial impact expected to be limited to the fourth quarter.
The American-Swiss insurer had only a 2.27% share of the California homeowners market in 2023, putting it outside the state’s top 10 largest home insurers. However, it focuses on providing coverage for more expensive homes such as those predominant in Pacific Palisades, which was devastated by the fires and has a median home value of $3.5 million, according to Zillow.
State Farm General, California’s largest home insurer, has not released its losses but asked state officials on Monday for an emergency rate hike averaging 22% Monday, saying the fires have put the company in dire financial straits.
The insurer, a subsidiary of State Farm Mutual Automobile Insurance Co. of Bloomington, Ill., said the company has already received at least 8,700 claims and paid more than $1 billion to customers. It also expects to pay out “significantly more” to satisfy claims.
The insurer said the rate hike is necessary to rebuild the company’s capital base so it will not have to “further constrain” its ability to provide home insurance in the state. Industry ratings agencies have said they expect such insurance premium increases because of the fires.
All told, risk modelers have estimated it will cost the insurance industry $20 billion to $45 billion to pay for property damage, temporary housing costs and other claims stemming from the fires. That would make the blazes one of the country’s worst natural disasters but likely not as costly as Hurricane Katrina.
The Los Angeles-area disaster is only the latest in a series of mega fires that have hit the state since the latter half of the last decade. In 2018, the Camp fire destroyed the town of Paradise in the Sierra Nevada foothills, causing $12.5 billion in insured losses, making it at the time the most costly fire in U.S. history.
The fires have prompted insurers in fire-prone neighborhoods to drop policy holders and stop writing new insurance, forcing many into the state’s FAIR Plan, an insurer of last resort that offers limited coverage. The plan has not yet released it losses, which are expected to be significant.
Allstate said last year that it would start writing new policies in the state only if approved rate hikes proved to be adequate and reforms championed by California Insurance Commissioner Ricardo Lara were put in place.
Those reforms, which allow insurers to charge California policyholders for the cost of reinsurance, are just now taking effect.
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