Will the California Wildfires Impact Insurance Rates In Alabama?

💵Overall Insurer Profitability

Even when large claims are specific to a certain region such as Los Angeles, it can put pressure on insurance companies to raise rates for all their customers – irrespective of being in a high-risk zone. In the 2010s, we averaged 12.8 natural disasters per year that exceeded $1 billion in cost. In the 2020s, we’re averaging over 20 per year. If an insurance company is profitable in Alabama but has $10 billion of underwriting loss across the United States, it puts pressure to raise rates here. Having said this, insurance companies tend to increase rates first in the areas that are seeing the highest claim activity.

📊Reinsurance Rates

Reinsurance is the insurance that insurance companies purchase. Because there are four reinsurers that dominate global reinsurance, a wildfire in California, or even a typhoon in Japan, can have downstream impacts for our insurance premiums in Alabama when reinsurers have to raise their rates.

Because so many insurance companies in California have been pulling back or exiting the state completely, the state-run ‘insurer of last resort’ has seen a dramatic increase in exposure. State run insurance plans tend to not be well-capitalized and therefore have to rely on reinsurance more heavily than traditional insurance companies in order to survive. Wildfires will be a big hit for reinsurers.

🛠️Supply Chain & Construction Labor

The combination of the California wildfires plus Hurricane Helene could create building supply shortages. A number of experts believe high end appliances in particular could see a real squeeze given the already tight supply chains and number of nicer homes destroyed in both events.

It is estimated that the U.S. currently has over 500,000 unfilled construction jobs. The wildfires could certainly draw labor to affected areas that promise long term demand.

10-20% of construction workers are thought to be illegal immigrants. If deportations begin to occur, we could see crews leave the Southeast in favor of L.A. being a sanctuary city.

🔥Summary

In the near-term Alabamians likely won’t see any direct impact from the California wildfires but there is reason to believe that we could see some impact 3-4 years from now as indirect costs such as building supply, construction labor, and reinsurance costs increase the costs for insurers.