Business
How the devastating Los Angeles fires could deepen California's home insurance crisis
When raging wildfires tore through Pacific Palisades and other local communities this week, they not only left a path of destruction reminiscent of a World War II bombing campaign, but threatened to deepen a crisis that has already left hundreds of thousands of Californians struggling to find and keep affordable homeowners insurance.
The multiple fires from Los Angeles to the San Gabriel Valley that have burned thousands of structures since Tuesday — leading to losses that by one early estimate are well into the tens of billions of dollars — hit Southern California as insurers have been dropping customers statewide citing the increasing number and severity of wildfire-related losses.
The Palisades fire alone, which consumed more than 5,000 homes and structures, is being called the most destructive fire ever to hit the city, while the fires across the county are likely to be one of the most expensive natural disasters in U.S. history.
“It’s just an unmitigated disaster,” said Amy Bach, executive director of United Policyholders, a consumer advocacy group. “Wildfires in January? This just proves insurers’ point that the risk is so significantly increased due to climate change.”
State Farm, the state’s largest home insurer, announced in March it would not renew 72,000 property insurance policies, while Chubb and its subsidiaries stopped writing new high-value homes with higher wildfire risk — just to name two insurers that pulled back from the California market.
It’s not clear how many homeowners in Pacific Palisades and elsewhere might not have had coverage, but at least some homeowners reported that insurers had not renewed their policies before the disaster struck. Actor James Woods, who lost his home in the Palisades fire, tweeted Tuesday that “one of the major insurances companies canceled all the policies in our neighborhood about four months ago.”
State Farm last year told the Department of Insurance it would not renew 1,626 policies in Pacific Palisades when they expired, starting last July.
A spokesperson for State Farm declined to comment on the decision but said: “Our number one priority right now is the safety of our customers, agents and employees impacted by the fires and assisting our customers in the midst of this tragedy.”
The situation has left many homeowners in neighborhoods at high wildfire risk with little choice but to seek relief from the California FAIR Plan, an insurer of last resort that sells policies with lesser coverage. The policies cover losses up to $3 million to a dwelling and its contents caused by certain hazards, such as fire, but do not include personal liability and other protection that are typically offered by private insurers.
The FAIR Plan has seen its policies grow from a little over 200,000 in September 2020 to more than 450,000 as of last September. That has roughly tripled its loss exposure to $458 billion over the same period. Pacific Palisades has one of the state’s highest concentrations of FAIR Plan policy holders, with the insurer estimating its exposure in the neighborhood at $5.89 billion.
JP Morgan analysts estimate that total L.A. County losses could be close to $50 billion, while the losses insurers will have to pay could top $20 billion. Another estimate puts the losses even higher.
Such losses could cause insurers to exit the market completely, which Tokio Marine America Insurance Co. and Trans Pacific Insurance Co. said in April they would do in not renewing 12,556 homeowners.
The losses also could prompt insurers to further raise premiums, even though some insurers already have been granted big rate hikes, such as a 34% increase Allstate received last year.
Denise Rappmund, senior analyst at Moody’s Ratings, said, “These events will continue to have widespread, negative impacts for the state’s broader insurance market — increased recovery costs will likely drive up premiums and may reduce property insurance availability.”
Should insurers further withdraw from the market, that would put additional pressure on the FAIR Plan, which is is backed by the state’s licensed insurers, such as State Farm, who have to pay claims if they exceed the FAIR Plans reserves, reinsurance and catastrophe bonding. The insurers also can assess their own policyholders surcharges in the billions of dollars to bail out the plan under regulations put in place last year by Insurance Commissioner Ricardo Lara as part of his Sustainable Insurance Strategy to help the crippled market.
It’s unclear whether the plan will be able to absorb the losses like it did after the 2018 Camp fire that destroyed the town of Paradise in North California. That conflagration was the single costliest natural disaster in the world that year with $12.5 billion in covered losses and $16.5 billion in total losses, according to the reinsurance firm, Munich RE.
“This further complicates an already complicated and hardened market,” Lara said of the fires, in an interview with The Times.
Nonetheless, Lara’s reforms seek to ensure the FAIR Plan remains solvent and to make it more attractive for insurers to write policies in fire risky neighborhoods now being absorbed by the program. He said the regulations should encourage insurers to write more homeowners policies, and if not, they can be adjusted. “I feel very confident,” he said.
For the first time, California insurers can use so-called “catastrophe models” in setting their rates. Instead of largely relying on past claims data, the computer programs attempt to better refine an insurer’s risk by taking into account a multitude of variables that affect a property’s likelihood to suffer a loss.
The other major policy change allows insurers to charge California homeowners for the cost of reinsurance they buy from other insurers to limit their losses during huge catastrophes, such as wildfires and floods. This cost shift to policyholders is common elsewhere but a big change for California, where it will raise premiums.
In return for those concessions, insurers will have to write insurance in high-risk wildfire neighborhoods equivalent to 85% of their market share, meaning an insurer with a 10% statewide market share would have to cover 8.5% of the homes in such neighborhoods — a target they have at least two years to reach. Lara’s plan has been blasted by the Los Angeles group, Consumer Watchdog, which says the regulations lack teeth in actually requiring insurers to meet the coverage goals.
“The Sustainable Insurance Strategy is not a magic wand. It’s a set of incentives,” Bach said. “At the end of the day, insurers are always still going to analyze, ‘Are we going to make money here or not?’”
How much this week’s fires will disrupt the already troubled insurance market depends, of course, on how big a disaster they are — but all indications are that insurers will have to absorb billions of dollars of claims given the number of homes destroyed, especially in the wealthy enclave of Pacific Palisades, where the average home is valued at about $3.5 million by Zillow.
Insurance industry experts say a clearer picture on the estimated losses will only come after adjusters have time to review submitted claims.
“I think it’s going to be 45 days before we know what the true damage is,” said Max Gilman, president of California personal lines at the brokerage HUB International.
Whatever the final cost, Gilman noted that the fires came after a couple of relatively light fire seasons — though in November the Mountain fire in Ventura County scorched more than some 20,640 acres and destroyed more than 130 homes amid parched conditions. That made it at the time the third most destructive fire in Southern California in a decade.
“I think what’s currently transpiring is going to be of grave concern for the future,” he said. “I feel like we we took three steps forward to take five steps back.”
Denne Ritter, a vice president with the American Property Casualty Insurance Assn. trade group, said it is too early to assess the impact of the fires on Lara’s reforms, especially given how they are just being put in place. Only one catastrophe model has been submitted for review to regulators, while the reinsurance regulation released last month still awaits final approval by the Office of Administrative Law.
“What the insurance industry wants is a healthy market in California where we can compete for business, as we have historically. And the number one priority right now is helping our customers get the resources they need to rebuild their lives and restore their property,” she said.
However, she noted that Mercury Insurance — which recently announced it started writing insurance again in Paradise — and Farmers Insurance, which said last month it is increasing the number of new home policies it will write, have “certainly made moves indicating a more bullish approach on the market.”
Allstate also has said it will resume writing new policies once Lara’s reforms are in place and it can get rates that fully cover its costs.
But all those pronouncements came before this week’s catastrophic fires.
The rolling robots that deliver groceries and hot meals across Los Angeles are getting an upgrade.
Coco Robotics, a UCLA-born startup that’s deployed more than 1,000 bots across the country, unveiled its next-generation machines on Thursday.
The new robots are bigger, tougher and better equipped for autonomy than their predecessors. The company will use them to expand into new markets and increase its presence in Los Angeles, where it makes deliveries through a partnership with DoorDash.
Dubbed Coco 2, the next-gen bots have upgraded cameras and front-facing lidar, a laser-based sensor used in self-driving cars. They will use hardware built by Nvidia, the Santa Clara-based artificial intelligence chip giant.
Coco co-founder and chief executive Zach Rash said Coco 2 will be able to make deliveries even in conditions unsafe for human drivers. The robot is fully submersible in case of flooding and is compatible with special snow tires.
Zach Rash, co-founder and CEO of Coco, opens the top of the new Coco 2 (Next-Gen) at the Coco Robotics headquarters in Venice.
(Kayla Bartkowski/Los Angeles Times)
Early this month, a cute Coco was recorded struggling through flooded roads in L.A.
“She’s doing her best!” said the person recording the video. “She is doing her best, you guys.”
Instagram followers cheered the bot on, with one posting, “Go coco, go,” and others calling for someone to help the robot.
“We want it to have a lot more reliability in the most extreme conditions where it’s either unsafe or uncomfortable for human drivers to be on the road,” Rash said. “Those are the exact times where everyone wants to order.”
The company will ramp up mass production of Coco 2 this summer, Rash said, aiming to produce 1,000 bots each month.
The design is sleek and simple, with a pink-and-white ombré paint job, the company’s name printed in lowercase, and a keypad for loading and unloading the cargo area. The robots have four wheels and a bigger internal compartment for carrying food and goods .
Many of the bots will be used for expansion into new markets across Europe and Asia, but they will also hit the streets in Los Angeles and operate alongside the older Coco bots.
Coco has about 300 bots in Los Angeles already, serving customers from Santa Monica and Venice to Westwood, Mid-City, West Hollywood, Hollywood, Echo Park, Silver Lake, downtown, Koreatown and the USC area.
The new Coco 2 (Next-Gen) drives along the sidewalk at the Coco Robotics headquarters in Venice.
(Kayla Bartkowski/Los Angeles Times)
The company is in discussion with officials in Culver City, Long Beach and Pasadena about bringing autonomous delivery to those communities.
There’s also been demand for the bots in Studio City, Burbank and the San Fernando Valley, according to Rash.
“A lot of the markets that we go into have been telling us they can’t hire enough people to do the deliveries and to continue to grow at the pace that customers want,” Rash said. “There’s quite a lot of area in Los Angeles that we can still cover.”
The bots already operate in Chicago, Miami and Helsinki, Finland. Last month, they arrived in Jersey City, N.J.
Late last year, Coco announced a partnership with DashMart, DoorDash’s delivery-only online store. The partnership allows Coco bots to deliver fresh groceries, electronics and household essentials as well as hot prepared meals.
With the release of Coco 2, the company is eyeing faster deliveries using bike lanes and road shoulders as opposed to just sidewalks, in cities where it’s safe to do so. Coco 2 can adapt more quickly to new environments and physical obstacles, the company said.
Zach Rash, co-founder and CEO of Coco.
(Kayla Bartkowski/Los Angeles Times)
Coco 2 is designed to operate autonomously, but there will still be human oversight in case the robot runs into trouble, Rash said. Damaged sidewalks or unexpected construction can stop a bot in its tracks.
The need for human supervision has created a new field of jobs for Angelenos.
Though there have been reports of pedestrians bullying the robots by knocking them over or blocking their path, Rash said the community response has been overall positive. The bots are meant to inspire affection.
“One of the design principles on the color and the name and a lot of the branding was to feel warm and friendly to people,” Rash said.
Coco plans to add thousands of bots to its fleet this year. The delivery service got its start as a dorm room project in 2020, when Rash was a student at UCLA. He co-founded the company with fellow student Brad Squicciarini.
The Santa Monica-based company has completed more than 500,000 zero-emission deliveries and its bots have collectively traveled around 1 million miles.
Coco chooses neighborhoods to deploy its bots based on density, prioritizing areas with restaurants clustered together and short delivery distances as well as places where parking is difficult.
The robots can relieve congestion by taking cars and motorbikes off the roads. Rash said there is so much demand for delivery services that the company’s bots are not taking jobs from human drivers.
Instead, Coco can fill gaps in the delivery market while saving merchants money and improving the safety of city streets.
“This vehicle is inherently a lot safer for communities than a car,” Rash said. “We believe our vehicles can operate the highest quality of service and we can do it at the lowest price point.”
President Trump on Friday directed federal agencies to stop using technology from San Francisco artificial intelligence company Anthropic, escalating a high-profile clash between the AI startup and the Pentagon over safety.
In a Friday post on the social media site Truth Social, Trump described the company as “radical left” and “woke.”
“We don’t need it, we don’t want it, and will not do business with them again!” Trump said.
The president’s harsh words mark a major escalation in the ongoing battle between some in the Trump administration and several technology companies over the use of artificial intelligence in defense tech.
Anthropic has been sparring with the Pentagon, which had threatened to end its $200-million contract with the company on Friday if it didn’t loosen restrictions on its AI model so it could be used for more military purposes. Anthropic had been asking for more guarantees that its tech wouldn’t be used for surveillance of Americans or autonomous weapons.
The tussle could hobble Anthropic’s business with the government. The Trump administration said the company was added to a sweeping national security blacklist, ordering federal agencies to immediately discontinue use of its products and barring any government contractors from maintaining ties with it.
Defense Secretary Pete Hegseth, who met with Anthropic’s Chief Executive Dario Amodei this week, criticized the tech company after Trump’s Truth Social post.
“Anthropic delivered a master class in arrogance and betrayal as well as a textbook case of how not to do business with the United States Government or the Pentagon,” he wrote Friday on social media site X.
Anthropic didn’t immediately respond to a request for comment.
Anthropic announced a two-year agreement with the Department of Defense in July to “prototype frontier AI capabilities that advance U.S. national security.”
The company has an AI chatbot called Claude, but it also built a custom AI system for U.S. national security customers.
On Thursday, Amodei signaled the company wouldn’t cave to the Department of Defense’s demands to loosen safety restrictions on its AI models.
The government has emphasized in negotiations that it wants to use Anthropic’s technology only for legal purposes, and the safeguards Anthropic wants are already covered by the law.
Still, Amodei was worried about Washington’s commitment.
“We have never raised objections to particular military operations nor attempted to limit use of our technology in an ad hoc manner,” he said in a blog post. “However, in a narrow set of cases, we believe AI can undermine, rather than defend, democratic values.”
Tech workers have backed Anthropic’s stance.
Unions and worker groups representing 700,000 employees at Amazon, Google and Microsoft said this week in a joint statement that they’re urging their employers to reject these demands as well if they have additional contracts with the Pentagon.
“Our employers are already complicit in providing their technologies to power mass atrocities and war crimes; capitulating to the Pentagon’s intimidation will only further implicate our labor in violence and repression,” the statement said.
Anthropic’s standoff with the U.S. government could benefit its competitors, such as Elon Musk’s xAI or OpenAI.
Sam Altman, chief executive of OpenAI, the company behind ChatGPT and one of Anthropic’s biggest competitors, told CNBC in an interview that he trusts Anthropic.
“I think they really do care about safety, and I’ve been happy that they’ve been supporting our war fighters,” he said. “I’m not sure where this is going to go.”
Anthropic has distinguished itself from its rivals by touting its concern about AI safety.
The company, valued at roughly $380 billion, is legally required to balance making money with advancing the company’s public benefit of “responsible development and maintenance of advanced AI for the long-term benefit of humanity.”
Developers, businesses, government agencies and other organizations use Anthropic’s tools. Its chatbot can generate code, write text and perform other tasks. Anthropic also offers an AI assistant for consumers and makes money from paid subscriptions as well as contracts. Unlike OpenAI, which is testing ads in ChatGPT, Anthropic has pledged not to show ads in its chatbot Claude.
The company has roughly 2,000 employees and has revenue equivalent to about $14 billion a year.
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