By Joe Brock and Chad Terhune
ALTADENA, Calif. (Reuters) – As Los Angeles construction worker Ivan De La Torre surveyed the landscape of smoldering wreckage in fire-ravaged Altadena, a question plagued him: How would insurance companies cover the cost of rebuilding an entire neighborhood?
As hundreds of Los Angeles residents return to find homes reduced to ashes by a devastating wave of wildfires, many fear their insurance policies may not cover the cost of rebuilding and future premiums will be astronomical.
“I’m worried that the insurance companies won’t be able to process all the claims and file bankruptcy and that’s it. It’s scary,” said De La Torre, 32, whose uncle and sister lost their homes in the fire that consumed half of Altadena, a suburb to the north from Los Angeles with some 40,000 people.
Leo Frank III, a 66-year-old actor who lost his family home in Altadena, said he fears insurers may delay paying claims and not cover the full cost of rebuilding.
“We’re going to rebuild. Nobody’s going to take our house,” Frank said as he searched for a shower seat for his 96-year-old mother in a parking lot full of donated supplies in Pasadena.
“But it will be a mess.”
Frank said he knows some neighbors who lost insurance on their homes before the fire as insurers pulled out of parched regions of California increasingly prone to wildfires.
“We were lucky we still had the policy,” he said.
The wildfires, among the worst natural disasters to ever hit California, have killed at least 11 people and destroyed or severely damaged more than 10,000 structures.
Reuters contacted nine leading insurance companies in California for comment.
State Farm, Nationwide, Allstate (NYSE: ), Mercury, Liberty Mutual and Farmers responded with statements saying they were working with policyholders to help them file claims, without addressing specific concerns about residents not receiving enough payments or rising future premiums.
After the fires this week, California Insurance Commissioner Ricardo Lara invoked the moratorium authority to suspend all non-renewals and cancellations of policies from insurance companies for one year.
Lara said in a statement Friday that he will host free insurance workshops next week in Santa Monica and Pasadena, suburbs near the two biggest fires.
U.S. insurance stocks fell on Friday as analysts estimated wildfire insurance costs could exceed $20 billion. Private forecaster AccuWeather estimated damage and economic loss from the fires at $135 billion to $150 billion, heralding a spike in homeowners’ insurance costs.
STATE INSURANCE
Although Altadena has never experienced fire devastation of this magnitude in the past, the suburb is located in the foothills of the San Gabriel Mountains, which are prone to wildfires. This made it difficult to obtain fire insurance.
Many residents in Altadena, a racially and economically diverse suburb, are covered by the California FAIR Plan, an insurance program supported by the state of California that is used by property owners who cannot find the private market.
FAIR Plan did not respond to a request for comment.
As private insurers turned away or dropped homeowners in wildfire-prone areas of California, residents increasingly switched to the FAIR plan, data shows.
As of the end of September last year, 958 homes in Altadena were covered by the program, which is 28% more than a year earlier, according to the insurer.
In Pacific Palisades, an affluent suburb west of downtown Los Angeles that was ravaged by wildfires this week, the increase in use of the FAIR plan was more pronounced. The program covers 1,430 homes, which is 85% more compared to the previous year and four times more than in 2020, according to data from the insurer.
Gabby Reyes, whose Altadena home was destroyed in a fire Wednesday morning, said FAIR Plan staff have been helpful, but she’s worried her policy won’t be enough to cover the rebuilding of the home she shares with her mother and daughter, given the fire left behind only the foundations.
“They talked to us and they were very good,” Reyes told Reuters, adding that real estate speculators had cold-called her to ask if they could buy her land.
– You can’t call people that when they are devastated.
