The Los Angeles wildfires are expected to raise insurance rates, reduce coverage options and strain housing affordability in California, which could lower creditworthiness across the state, S&P Global said in a report Thursday.
California wildfires have already inflated costs for U.S. property insurance companies over the past 30 years, S&P said, driving up premiums, shaping underwriting practices and challenging regulatory reform. Losses are expected to grow following the ongoing fires, which analysts have estimated could cost the insurance industry about $30 billion.
"The rising insurance costs and mounting affordability challenges could weigh on the creditworthiness for the state of California over time," S&P said, adding that its rating outlook in the state remains stable for now.
Insurers are likely to increase rates or reduce coverage options in California, which could spill over to other wildfire-prone states like Washington, Oregon and Colorado, S&P said.
California's regulatory market is especially complex for insurers because rate increases must be approved by the state's insurance commissioner, said S&P. This makes the rate approval process longer than in other states and has driven some insurers to reduce coverage, it added. The state is working on adjusting that regulation, which could improve insurance accessibility, but drive rates up faster, said the S&P.
The fires could also push down home values, the report said. This could be problematic for California, which is already facing slower population growth than that of other states as many people leave for more tax-friendly affordable places to live, added the S&P.
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