L.A. Wildfires Lay Bare an Insurance Crisis

ImageWho pays? The ferocious wildfires that have burned throughout the Los Angeles area continued to rage overnight, consuming an area twice the size of Manhattan.Forecasters expected “critical red flag” conditions to continue on Friday before the hurricane-force winds that have fueled the blazes subside in the afternoon.The devastation has more people asking one hard question: Has this part of California become uninsurable?The latest: At least 10 people have died and roughly 180,000 have been forced to evacuate, as firefighters take on six major blazes and remain on high alert for others.

Thousands of homes and businesses, including whole neighborhoods in affluent communities such as Pacific Palisades and Malibu, have burned to the ground.AccuWeather, the private forecaster, tripled its estimates of the fires’ total economic damage and losses to as much as $150 billion.“We are absolutely not out of this extreme weather event,” Kristin Crowley, the Los Angeles fire chief, said last night.Even for a region accustomed to destructive natural calamities, this one seems seared in the collective conscience.

The Pacific Palisades area has been described as “a ghost town.” Across the region, the afflicted include everyday Angelenos and Hollywood celebrities.“We think these could be among the most expensive wildfires in U.S.history,” Scott Heleniak, an analyst at RBC Capital Markets, wrote in a research note on Thursday, estimating that insured losses could top $20 billion.

The previous record was the 2018 Camp fire in Northern California, where losses hit $12.5 billion.One group that appears to have been spared so far: holders of catastrophe bonds, which have largely held their value even as local insurance losses mount.With climate disasters on the rise, insurers have increasingly sold these instruments to investors to manage risk.Insurers, homeowners and businesses aren’t so lucky.

Even before this winter’s wildfire season arrived, officials in t...