Bloomberg Audio Studios, podcasts, radio news technology. Can I ask where you live?
Pellick Well, I used to.
Live in the Palisades. Patrick Netter is seventy two years old. He spoke with Bloomberg reporter Michelle ma on Wednesday night from an evacuation shelter in Westwood, Los Angeles. Just a day earlier, Patrick had started his morning with a walk in his neighborhood, sow fun.
The bluffs of the Palisades.
It's a magical basil. Hours later, he was told to evacuate. A brushfire that sparked on Tuesday morning near the Pacific Palisades had started to spread, spurred on by the notoriously strong Santa Ana winds.
The smoke it was hilacious.
I put stuff in two big boxes of just memorabilian and photographs. By Thursday, the neighborhood that Patrick described as magical had been destroyed. That Palisades fire and several others that erupted in Los Angeles County this week, have now burned over twenty nine thousand acres. Nearly one hundred and eighty thousand residents have been told to leave their homes.
I mean they called it a warzone, ap apocalyptic.
It is unbelievable.
It is on track to be one of the most destructive in the area, possibly ever.
That's Leslie Kaufman, a Bloomberg reporter who covers climate change, including its effects on the insurance industry. She says it will take time to put out the fires that are still ravaging Los Angeles, and even more time for residents like Patrick to figure out next steps and assess the damage. Patrick heard that the house next to his burned down and things his must have too. I don't say anything is going to be there the heat of that fire, don't.
I would be surprised if there is anything. Patrick is now trying to figure out where he's going to live and whether he has an insurance policy that will cover any of his losses. He only moved to the Palisades eight months ago, and he says his first insurance application was rejected. He isn't sure if it ever got approved.
Maybe it was because it's Palisades or whatever.
There was an issue and I didn't and I didn't.
People are losing entire homes and that's got to be terrifying. It's terrifying under normal situations, but it's especially terrifying now because people don't have a lot of faith in their insurance policies.
This is the big take from Bloomberg News. I'm Sarah Holder. Today on the show, I talk with Leslie about the fires in Los Angeles and whether California's insurers are prepared to handle the fallout. Leslie, we're talking on Thursday afternoon. Los Angeles has been burning since Tuesday morning. What started as a brush fire in LA's Pacific Palisades neighborhood east of Malibu has spread to become one of the most destructive natural disasters in the region's history. The uncontrolled wildfies.
Still residents are fleeing from burning homes through flames, ferocious winds, and towering clouds of smoke. Preliminary reports estimate the damage or destroyed structures to be in the thousands. You've covered wildfires in California and elsewhere in the past. What makes this fire different.
Well, we're watching the climate change component of this fire, first of all, very closely, and it's very important to note that this would in traditional times have been rainy season in Los Angeles. It is not anymore. The ocean is warmed enough that we are seeing a complete change or a ongoing change in how that whole area will function environmentally, which is there should be rains now, so that if the Santa Ana winds were coming, they wouldn't
be blowing fire. Now there is no rains. There hasn't been meaningful rain since April. So that's one of the things that makes it different. The other is the location of one of the fires and Pacific Palisades. There are a lot of fires in the regions, but Pacific Palisades has always been something that insures particularly worry about. It's a lot of very valuable homes right next to each other. And we're not talking little homes. We're talking big, mega,
million dollar mansions. Yet they're piled on top of each other on these gorgeous hills that overlook the ocean. I've been there, I've hiked there, but not easy to access. The whole point of this is that it's away from the highways, away from the hustle and bustle, so very hard to get in and out of those neighborhoods, especially with fire trucks.
And as we look towards getting this fire under control, what might it take and how long could it take?
It's going to require incredible resources. The federal government has said they will step in and help out. We had a story saying the Pentagon was offering to help out. They also need some luck. They need those winds to die down. It's very hard to fight fire when you have fast winds and dry climates. Sparks just go places. So we've got a hope for some luck as well.
Can you paint a picture of the kind of destruction that's happening in these neighborhoods right now?
Well, I have family out there, and we have reporters out there. So there's people who have been evacuated and don't know where to go. They're people have lost entire homes, and that's got to be terrifying. It's terrifying under normal situations, but it's especially terrifying now because people don't have a lot of faith in their insurance policies. So it's an incredible dislocation for that city and for the people that are there. My sister lives there and has her bags
packed all the time. I think that must psychologically be brutal.
So far, Leslie says her sister hasn't been ordered to evacuate, coming up. California's insurance system was already on the brain of crisis before this week's blaze. Will it be strong enough to help Los Angeles residents rebuild what they've lost? Thousands of people are still in the throes of this crisis. They're figuring out where they'll be staying in the short and long term, what belongings they can salvage from their homes.
But one of the things people also might be thinking about right now is how they'll be made whole when the dust settles, whether insurance will help them cover their losses. And Leslie, you've been writing about insurers pulling out of wildfire zones in California for years and the huge gaps in coverage that's created. Is California's insurance system prepared to handle this fire?
Wow? This is the question we're all waiting to find out, and that's a little bit scary. California insurance, like a lot of places these days, has two big pieces. It's got private insurance like State Farm, the state's largest insure, and then it's got the pub lonsure of last resort, which is the California Fair Plan. State Farm has been
pulling out slowly some insurers have left completely. State Farm in particular, canceled a lot of policies last year in the Pacific Palisades and in Malibu, basically saying the risk here is too high. The Fair Plan took on a lot of those people. It has yet to really face this magnitude of a catastrophe, so we don't know how well it's going to do. We do know that unlike a private insurer which can go bankrupt, the Fair Plan cannot.
If they have to, they will put an assessment on the insurance companies and on private policy holders, but that could be a big price. We can say for sure they will be impacts to the housing market and to the insurance market, and they will not be fun.
You mentioned some of these homeowners in these neighborhoods have been dropped by their private insurers and have gone to the Fair Plan. Do you have a sense of how many and how much of the impacted neighborhoods are aliant on the insurance plan of last resort provided by the state.
Well, we do have some numbers. We know that last year State Farm, for instance, canceled almost seventy percent of its policies in the biggest ZIP code in the Pacific Palisades well, at the same time, the Fair Plan grew eighty five percent in that area, So that gives you some sense of what's happened. And we know that the fair Plan's exposure in the Pacific Palisades alone. That means if everything they ensured required them to rebuild, so that's
their total exposure is nearly six billion. It's not six billion, but it's nearly six billion as of September of last year, So there's a lot at stake financially as well.
What are the concerns about the Fair Plan's coverage system and why is there this fear that it won't be enough to handle all these claims.
The way insurers work is they collect money from premiums, and they keep a certain amount of cash on hand to cover things, and then they also buy some thing called reinsurance, which is their own insurance, and together that amount should be enough to cover every risk in their portfolio. But fair is not the same as a private insurer, and so they have not said exactly how much reinsurance they have, but our reporting indicates it's about two point
five billion. That plus what cash they have on hand, would be far less than what we think the damage will be. So there's going to be a big gap that if they were a private insured they would go under,
which would be very scary. So somehow Fair is going to come up with this money, but how they're going to do it, whether they're going to tax people, And the other concern about Fair is since they've never had a major catastrophe, no one knows how they will do with things like sending an assessor out to your property. I mean, major insurers have a whole network and infrastructure for dealing with catastrophe, and Fair is a state run
government plan that's never been tested. We don't know what their infrastructure looks like, but we do know that they've been challenged with much smaller things like having their phone systems work. So there's some concern around that as well.
What is the state trying to do to shore up the system right now?
The California insurance system has been very challenged by something called Proposition one oh three, which was a law passed years ago in California that limited the amount that insurance companies could charge people. So over time, insurance companies have really felt that they've not been able to charge people adequately for the risk that they were undergoing in recent years.
Particularly really at the end of last year, the California Insurance Commission made a series of reforms they are not completely through yet that would essentially allow them to pass along reinsurance costs that would allow them to use catastrophic models to know which homes are more risky and which are less and price accordingly. But those reforms, even though they're just being passed, aren't in place yet, and they'll
probably be challenged in court anyway. So they were meant to help the insurers get capital back and to make it a more appealing market to join. That was just happening now, and then the fire hits, So the timing is roughier. The timing is roughier. The insurers have not yet had a chance to recoup what they need to, and they may simply decide that they're not willing to stay in. And that's one of the big questions.
What about for people who are no longer covered by private insurance, who have not signed on to the fair plan. Are there folks in this area who are completely uninsured?
Well, I'm sure there are people who decided they would self ensure. There are a lot of very very rich people up there, and maybe some of them made the decision that they didn't trust the insurance companies and that they had enough money to rebuild. I think much more problematic are people who had coverage with one and were in the middle of transitioning to someone else and they're
not sure if they have coverage either. And that's people who wanted coverage but who might actually, just through the poorness of the timing of this fire, be suffering.
What does this insurance crisis on top of a climate crisis, on top of an immediate wildfire crisis mean for the communities that have been destroyed in this fire, can and will they be able to rebuild?
Like hurricanes in Florida, like coastal flooding. We are reaching a point where people cannot keep ignoring climate change. It is coming literally to your doorstep, and you have to ask whether rebuilding again and again in what will certainly be a fire zone. And we think with changing climate, this kind of fire is not a one in one hundred year event. It's maybe a one in five year event. Now,
whether to keep rebuilding there makes sense. On the other hand, people love their communities, They love their home their insurance pays them to rebuild back where they are, so this is not a question that will be easy. I think the big issue will be what does insurance do for housing affordability everywhere in the state.
Obviously we're in crisis mode right now, but people are worried. You know, do I have insurance? Does insurance cover me? Will the Fair Act have enough money to pay out my claims? How long will it take to sort of sort those questions out and bring homeowners relief?
It will take a while. I mean, they need to get this fire under control. Hopefully the winds will stop, they'll bring in the reinforcements, they'll really start cutting it back, and then only when we know the extent will we know how bad it is and what the implications are. There will certainly be some implications. Reinsurance will certainly charge more next year, it will be harder to get insurance in California, prices will go up. All of those things
will definitely happen. But the extent and the impact that'll take a couple of years to sort of figure out.
Well, Leslie, thank you so much for joining us, and I'm thinking of your sister and everyone out in La dealing with this me too.
Thank you very much.
This is the Big Take from Bloomberg News. I'm Sarah Holder. This episode was produced by Julia Press. It was edited by our senior producer Naomi Shavin, Racy Samuelson, and Brian Eckhouse. Special thanks to Michelle maw for sharing her reporting. It was mixed and sound designed by Alex Sugiura. It was fact checked by Adrian Atapia. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole Beamster. Bor Sage Bauman is
Bloomberg's head of podcasts. If you like this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow