The ongoing massive wildfires across the Los Angeles (LA) area are expected to cost the insurance industry over $30 billion, according to recent analyses. Despite a week having passed since the fires began, relentless high winds have exacerbated the damage.

On January 14, Bloomberg reported that financial giant Wells Fargo estimated the insurance-related losses at approximately $30 billion. Similarly, Goldman Sachs projected losses between $10 billion and $30 billion for insured properties, with an additional $10 billion for uninsured homes, bringing total losses to $40 billion.

Data from the California Department of Insurance indicates that between 2020 and 2022, insurance companies declined to renew 2.8 million homeowner insurance policies in California, 531,000 of which were in LA County. Uninsured residents are now bearing the full cost of temporary housing, living expenses, and reconstruction.

The Pacific Palisades Fire in western LA County is 14% contained, while the Eaton Fire in the eastern inland area is 33% contained. Approximately 92,000 residents have been evacuated under mandatory orders, while strong wind warnings complicate firefighting efforts. The National Weather Service (NWS) has issued a "Particularly Dangerous Situation" (PDS) red flag warning for parts of LA and Ventura counties, warning of "explosive fire growth." Winds of 55.30 to 70.21 mph are forecasted to persist until noon on January 15.

Insurance companies are facing unprecedented costs due to these fires. Wells Fargo identified Allstate Corp., Chubb, AIG, and Travelers Cos. as heavily exposed in the affected area. Companies such as Mercury General and Cincinnati Financial, which specialize in policies not backed by banks, are also significantly impacted.

Real estate data firm CoreLogic estimated that rebuilding costs for commercial and residential properties in the affected areas could reach at least $14.8 billion. Around 16,500 properties are potentially impacted.

Over 12,000 homes and buildings, spanning an area larger than San Francisco, have been destroyed. The Federal Emergency Management Agency (FEMA) expects debris removal to take over six months.

The economic ripple effects extend far beyond property damages. Weather analytics firm AccuWeather estimates total economic losses from the wildfires at $250 billion to $275 billion, accounting for uninsured damages, lost wages, business interruptions, and supply chain disruptions.

Goldman Sachs economists predict the fires could reduce U.S. employment growth in January by 15,000 to 25,000 jobs, with 0.5% of California's population under evacuation orders or warnings. Additionally, the wildfires are expected to decrease U.S. GDP growth by 0.2 percentage points in the first quarter.

Reporter: Park Hong-yong

<Hongyong Park>