Los Angeles’ catastrophic wildfires could cost the economy up to $150 billion and recovery could take a decade, organizations predict.
A series of wildfires broke out on January 7 north of downtown Los Angeles (USA). The Pacific Palisades, Eaton and Hurst fires, along with several smaller fires, have formed a “firestorm” triangle covering more than 11,600 hectares, burning more than 12,000 structures and many vehicles, forcing more than 180,000 people to evacuate in Los Angeles.
At least 16 people have died in the Los Angeles wildfires. The death toll is likely to rise as rescue teams search for missing people in areas where the fires have swept through.
US President Joe Biden described it as the fastest-spreading and most destructive wildfire disaster in California’s history.
Analysts are still assessing the financial impact of the disaster. Several organizations have raised their estimates of the damage caused by the wildfires.
JP Morgan doubled its forecast for insured losses to $20 billion. Wells Fargo gave a similar figure, warning that the total economic cost of the disaster could exceed $60 billion.
Investment bank Raymond James forecast insured losses of $11 billion to $17.5 billion, saying the disaster could be the most expensive wildfire in U.S. history. Analysts at credit rating agency Morningstar DBRS maintained their forecast for insured losses of more than $8 billion.
Private weather forecasting firm AccuWeather even estimated the economic cost at $135 billion to $150 billion, signaling a difficult recovery and skyrocketing homeowner’s insurance premiums.
“It will take weeks to months to determine the extent of the insured losses. However, the Los Angeles wildfire could be one of the most expensive fires in California history,” said Moody’s Ratings.
Los Angeles wildfires burn down a series of expensive mansions, causing hundreds of billions of dollars in damage
Location of the fires in Los Angeles (Photo: CNN).
Pacific Palisades is one of the most expensive areas in the US, home to many Hollywood A-listers and multimillion-dollar mansions. After this week’s fire, insurance premiums here could skyrocket.
“Although the leading real estate insurance companies in the US have a good financial foundation, the real estate insurance market in California has faced many challenges in recent times. This has caused many leading real estate companies to rethink their insurance products, even withdraw from the market,” Morningstar DBRS emphasized in the report.
Rebuilding wildfire-affected areas could take five to 10 years, according to Aris Papadopoulos, founder of the Resilience Action Fund (RAF).
He predicts that about a third of homeowners will sell their property and leave, while a third of wealthier residents will rebuild within three to five years. Meanwhile, the rest, including those who are not wealthy, uninsured, or underinsured, could take up to a decade to rebuild.
Those who choose to rebuild will face higher costs for materials and labor, along with longer wait times due to a dearth of reputable contractors. “Those with the financial means will hire contractors first, and the rest will have to wait until they finish,” he told Fortune.
Additionally, nearly half of the area’s small businesses are not expected to reopen, reducing local tax revenue and dealing a blow to the regional economy. The government will also have to shoulder more of the costs of repairing public assets and restoring essential services.
Papadopoulos stressed that both homeowners and governments need to raise building standards to make them more resilient to future wildfires.
California is the largest home insurance market in the US, but it is also one of the most challenging regions for insurers. It is estimated that eight of the 10 costliest wildfires in the US occurred in the state.
“These events will continue to have a profound and negative impact on the state’s insurance market. Increased claims could increase premiums and reduce insurers’ ability to pay,” Denise Rappmund, senior analyst at Moody’s Ratings, said in the report.
The California Environmental Protection Agency has warned that the region is facing more frequent and larger wildfires due to climate change.
Firefighters are racing to contain the series of wildfires before strong winds return and threaten to fan the flames. Local officials say they have made some progress, but are concerned the fires could spread further.
