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Speaker 1: Bloomberg Audio Studios, podcasts, radio news technology. Can I ask

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Speaker 1: where you live?

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Speaker 2: Pellick Well, I used to.

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Speaker 1: Live in the Palisades. Patrick Netter is seventy two years old.

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Speaker 1: He spoke with Bloomberg reporter Michelle ma on Wednesday night

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Speaker 1: from an evacuation shelter in Westwood, Los Angeles. Just a

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Speaker 1: day earlier, Patrick had started his morning with a walk

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Speaker 1: in his neighborhood, sow fun.

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Speaker 2: The bluffs of the Palisades.

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Speaker 1: It's a magical basil. Hours later, he was told to evacuate.

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Speaker 1: A brushfire that sparked on Tuesday morning near the Pacific

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Speaker 1: Palisades had started to spread, spurred on by the notoriously

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Speaker 1: strong Santa Ana winds.

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Speaker 2: The smoke it was hilacious.

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Speaker 1: I put stuff in two big boxes of just memorabilian

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Speaker 1: and photographs. By Thursday, the neighborhood that Patrick described as

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Speaker 1: magical had been destroyed. That Palisades fire and several others

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Speaker 1: that erupted in Los Angeles County this week, have now

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Speaker 1: burned over twenty nine thousand acres. Nearly one hundred and

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Speaker 1: eighty thousand residents have been told to leave their homes.

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Speaker 2: I mean they called it a warzone, ap apocalyptic.

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Speaker 1: It is unbelievable.

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Speaker 2: It is on track to be one of the most

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Speaker 2: destructive in the area, possibly ever.

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Speaker 1: That's Leslie Kaufman, a Bloomberg reporter who covers climate change,

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Speaker 1: including its effects on the insurance industry. She says it

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Speaker 1: will take time to put out the fires that are

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Speaker 1: still ravaging Los Angeles, and even more time for residents

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Speaker 1: like Patrick to figure out next steps and assess the damage.

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Speaker 1: Patrick heard that the house next to his burned down

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Speaker 1: and things his must have too. I don't say anything

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Speaker 1: is going to be there the heat of that fire, don't.

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Speaker 1: I would be surprised if there is anything. Patrick is

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Speaker 1: now trying to figure out where he's going to live

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Speaker 1: and whether he has an insurance policy that will cover

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Speaker 1: any of his losses. He only moved to the Palisades

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Speaker 1: eight months ago, and he says his first insurance application

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Speaker 1: was rejected. He isn't sure if it ever got approved.

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Speaker 2: Maybe it was because it's Palisades or whatever.

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Speaker 1: There was an issue and I didn't and I didn't.

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Speaker 2: People are losing entire homes and that's got to be terrifying.

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Speaker 2: It's terrifying under normal situations, but it's especially terrifying now

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Speaker 2: because people don't have a lot of faith in their

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Speaker 2: insurance policies.

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Speaker 1: This is the big take from Bloomberg News. I'm Sarah Holder.

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Speaker 1: Today on the show, I talk with Leslie about the

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Speaker 1: fires in Los Angeles and whether California's insurers are prepared

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Speaker 1: to handle the fallout. Leslie, we're talking on Thursday afternoon.

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Speaker 1: Los Angeles has been burning since Tuesday morning. What started

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Speaker 1: as a brush fire in LA's Pacific Palisades neighborhood east

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Speaker 1: of Malibu has spread to become one of the most

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Speaker 1: destructive natural disasters in the region's history. The uncontrolled wildfies.

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Speaker 1: Still residents are fleeing from burning homes through flames, ferocious winds,

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Speaker 1: and towering clouds of smoke. Preliminary reports estimate the damage

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Speaker 1: or destroyed structures to be in the thousands. You've covered

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Speaker 1: wildfires in California and elsewhere in the past. What makes

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Speaker 1: this fire different.

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Speaker 2: Well, we're watching the climate change component of this fire,

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Speaker 2: first of all, very closely, and it's very important to

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Speaker 2: note that this would in traditional times have been rainy

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Speaker 2: season in Los Angeles. It is not anymore. The ocean

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Speaker 2: is warmed enough that we are seeing a complete change

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Speaker 2: or a ongoing change in how that whole area will

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Speaker 2: function environmentally, which is there should be rains now, so

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Speaker 2: that if the Santa Ana winds were coming, they wouldn't

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Speaker 2: be blowing fire. Now there is no rains. There hasn't

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Speaker 2: been meaningful rain since April. So that's one of the

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Speaker 2: things that makes it different. The other is the location

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Speaker 2: of one of the fires and Pacific Palisades. There are

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Speaker 2: a lot of fires in the regions, but Pacific Palisades

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Speaker 2: has always been something that insures particularly worry about. It's

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Speaker 2: a lot of very valuable homes right next to each other.

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Speaker 2: And we're not talking little homes. We're talking big, mega,

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Speaker 2: million dollar mansions. Yet they're piled on top of each

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Speaker 2: other on these gorgeous hills that overlook the ocean. I've

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Speaker 2: been there, I've hiked there, but not easy to access.

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Speaker 2: The whole point of this is that it's away from

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Speaker 2: the highways, away from the hustle and bustle, so very

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Speaker 2: hard to get in and out of those neighborhoods, especially

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Speaker 2: with fire trucks.

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Speaker 1: And as we look towards getting this fire under control,

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Speaker 1: what might it take and how long could it take?

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Speaker 2: It's going to require incredible resources. The federal government has

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Speaker 2: said they will step in and help out. We had

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Speaker 2: a story saying the Pentagon was offering to help out.

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Speaker 2: They also need some luck. They need those winds to

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Speaker 2: die down. It's very hard to fight fire when you

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Speaker 2: have fast winds and dry climates. Sparks just go places.

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Speaker 2: So we've got a hope for some luck as well.

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Speaker 1: Can you paint a picture of the kind of destruction

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Speaker 1: that's happening in these neighborhoods right now?

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Speaker 2: Well, I have family out there, and we have reporters

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Speaker 2: out there. So there's people who have been evacuated and

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Speaker 2: don't know where to go. They're people have lost entire homes,

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Speaker 2: and that's got to be terrifying. It's terrifying under normal situations,

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Speaker 2: but it's especially terrifying now because people don't have a

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Speaker 2: lot of faith in their insurance policies. So it's an

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Speaker 2: incredible dislocation for that city and for the people that

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Speaker 2: are there. My sister lives there and has her bags

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Speaker 2: packed all the time. I think that must psychologically be brutal.

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Speaker 1: So far, Leslie says her sister hasn't been ordered to evacuate,

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Speaker 1: coming up. California's insurance system was already on the brain

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Speaker 1: of crisis before this week's blaze. Will it be strong

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Speaker 1: enough to help Los Angeles residents rebuild what they've lost?

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Speaker 1: Thousands of people are still in the throes of this crisis.

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Speaker 1: They're figuring out where they'll be staying in the short

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Speaker 1: and long term, what belongings they can salvage from their homes.

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Speaker 1: But one of the things people also might be thinking

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Speaker 1: about right now is how they'll be made whole when

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Speaker 1: the dust settles, whether insurance will help them cover their losses.

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Speaker 1: And Leslie, you've been writing about insurers pulling out of

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Speaker 1: wildfire zones in California for years and the huge gaps

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Speaker 1: in coverage that's created. Is California's insurance system prepared to

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Speaker 1: handle this fire?

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Speaker 2: Wow? This is the question we're all waiting to find out,

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Speaker 2: and that's a little bit scary. California insurance, like a

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Speaker 2: lot of places these days, has two big pieces. It's

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Speaker 2: got private insurance like State Farm, the state's largest insure,

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Speaker 2: and then it's got the pub lonsure of last resort,

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Speaker 2: which is the California Fair Plan. State Farm has been

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Speaker 2: pulling out slowly some insurers have left completely. State Farm

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Speaker 2: in particular, canceled a lot of policies last year in

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Speaker 2: the Pacific Palisades and in Malibu, basically saying the risk

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Speaker 2: here is too high. The Fair Plan took on a

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Speaker 2: lot of those people. It has yet to really face

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Speaker 2: this magnitude of a catastrophe, so we don't know how

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Speaker 2: well it's going to do. We do know that unlike

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Speaker 2: a private insurer which can go bankrupt, the Fair Plan cannot.

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Speaker 2: If they have to, they will put an assessment on

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Speaker 2: the insurance companies and on private policy holders, but that

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Speaker 2: could be a big price. We can say for sure

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Speaker 2: they will be impacts to the housing market and to

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Speaker 2: the insurance market, and they will not be fun.

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Speaker 1: You mentioned some of these homeowners in these neighborhoods have

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Speaker 1: been dropped by their private insurers and have gone to

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Speaker 1: the Fair Plan. Do you have a sense of how

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Speaker 1: many and how much of the impacted neighborhoods are aliant

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Speaker 1: on the insurance plan of last resort provided by the state.

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Speaker 2: Well, we do have some numbers. We know that last

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Speaker 2: year State Farm, for instance, canceled almost seventy percent of

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Speaker 2: its policies in the biggest ZIP code in the Pacific

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Speaker 2: Palisades well, at the same time, the Fair Plan grew

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Speaker 2: eighty five percent in that area, So that gives you

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Speaker 2: some sense of what's happened. And we know that the

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Speaker 2: fair Plan's exposure in the Pacific Palisades alone. That means

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Speaker 2: if everything they ensured required them to rebuild, so that's

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Speaker 2: their total exposure is nearly six billion. It's not six billion,

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Speaker 2: but it's nearly six billion as of September of last year,

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Speaker 2: So there's a lot at stake financially as well.

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Speaker 1: What are the concerns about the Fair Plan's coverage system

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Speaker 1: and why is there this fear that it won't be

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Speaker 1: enough to handle all these claims.

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Speaker 2: The way insurers work is they collect money from premiums,

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Speaker 2: and they keep a certain amount of cash on hand

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Speaker 2: to cover things, and then they also buy some thing

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Speaker 2: called reinsurance, which is their own insurance, and together that

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Speaker 2: amount should be enough to cover every risk in their portfolio.

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Speaker 2: But fair is not the same as a private insurer,

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Speaker 2: and so they have not said exactly how much reinsurance

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Speaker 2: they have, but our reporting indicates it's about two point

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Speaker 2: five billion. That plus what cash they have on hand,

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Speaker 2: would be far less than what we think the damage

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Speaker 2: will be. So there's going to be a big gap

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Speaker 2: that if they were a private insured they would go under,

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Speaker 2: which would be very scary. So somehow Fair is going

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Speaker 2: to come up with this money, but how they're going

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Speaker 2: to do it, whether they're going to tax people, And

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Speaker 2: the other concern about Fair is since they've never had

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Speaker 2: a major catastrophe, no one knows how they will do

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Speaker 2: with things like sending an assessor out to your property.

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Speaker 2: I mean, major insurers have a whole network and infrastructure

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Speaker 2: for dealing with catastrophe, and Fair is a state run

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Speaker 2: government plan that's never been tested. We don't know what

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Speaker 2: their infrastructure looks like, but we do know that they've

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Speaker 2: been challenged with much smaller things like having their phone

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Speaker 2: systems work. So there's some concern around that as well.

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Speaker 1: What is the state trying to do to shore up

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Speaker 1: the system right now?

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Speaker 2: The California insurance system has been very challenged by something

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Speaker 2: called Proposition one oh three, which was a law passed

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Speaker 2: years ago in California that limited the amount that insurance

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Speaker 2: companies could charge people. So over time, insurance companies have

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Speaker 2: really felt that they've not been able to charge people

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Speaker 2: adequately for the risk that they were undergoing in recent years.

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Speaker 2: Particularly really at the end of last year, the California

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Speaker 2: Insurance Commission made a series of reforms they are not

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Speaker 2: completely through yet that would essentially allow them to pass

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Speaker 2: along reinsurance costs that would allow them to use catastrophic

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Speaker 2: models to know which homes are more risky and which

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Speaker 2: are less and price accordingly. But those reforms, even though

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Speaker 2: they're just being passed, aren't in place yet, and they'll

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Speaker 2: probably be challenged in court anyway. So they were meant

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Speaker 2: to help the insurers get capital back and to make

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Speaker 2: it a more appealing market to join. That was just

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Speaker 2: happening now, and then the fire hits, So the timing

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Speaker 2: is roughier. The timing is roughier. The insurers have not

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Speaker 2: yet had a chance to recoup what they need to,

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Speaker 2: and they may simply decide that they're not willing to

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Speaker 2: stay in. And that's one of the big questions.

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Speaker 1: What about for people who are no longer covered by

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Speaker 1: private insurance, who have not signed on to the fair plan.

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Speaker 1: Are there folks in this area who are completely uninsured?

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Speaker 2: Well, I'm sure there are people who decided they would

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Speaker 2: self ensure. There are a lot of very very rich

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Speaker 2: people up there, and maybe some of them made the

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Speaker 2: decision that they didn't trust the insurance companies and that

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Speaker 2: they had enough money to rebuild. I think much more

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Speaker 2: problematic are people who had coverage with one and were

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Speaker 2: in the middle of transitioning to someone else and they're

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Speaker 2: not sure if they have coverage either. And that's people

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Speaker 2: who wanted coverage but who might actually, just through the

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Speaker 2: poorness of the timing of this fire, be suffering.

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Speaker 1: What does this insurance crisis on top of a climate crisis,

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Speaker 1: on top of an immediate wildfire crisis mean for the

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Speaker 1: communities that have been destroyed in this fire, can and

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Speaker 1: will they be able to rebuild?

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Speaker 2: Like hurricanes in Florida, like coastal flooding. We are reaching

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Speaker 2: a point where people cannot keep ignoring climate change. It

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Speaker 2: is coming literally to your doorstep, and you have to

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Speaker 2: ask whether rebuilding again and again in what will certainly

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Speaker 2: be a fire zone. And we think with changing climate,

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Speaker 2: this kind of fire is not a one in one

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Speaker 2: hundred year event. It's maybe a one in five year event. Now,

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Speaker 2: whether to keep rebuilding there makes sense. On the other hand,

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Speaker 2: people love their communities, They love their home their insurance

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Speaker 2: pays them to rebuild back where they are, so this

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Speaker 2: is not a question that will be easy. I think

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Speaker 2: the big issue will be what does insurance do for

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Speaker 2: housing affordability everywhere in the state.

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Speaker 1: Obviously we're in crisis mode right now, but people are worried.

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Speaker 1: You know, do I have insurance? Does insurance cover me?

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Speaker 1: Will the Fair Act have enough money to pay out

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Speaker 1: my claims? How long will it take to sort of

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Speaker 1: sort those questions out and bring homeowners relief?

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Speaker 2: It will take a while. I mean, they need to

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Speaker 2: get this fire under control. Hopefully the winds will stop,

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Speaker 2: they'll bring in the reinforcements, they'll really start cutting it back,

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Speaker 2: and then only when we know the extent will we

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Speaker 2: know how bad it is and what the implications are.

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Speaker 2: There will certainly be some implications. Reinsurance will certainly charge

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Speaker 2: more next year, it will be harder to get insurance

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Speaker 2: in California, prices will go up. All of those things

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Speaker 2: will definitely happen. But the extent and the impact that'll

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Speaker 2: take a couple of years to sort of figure out.

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Speaker 1: Well, Leslie, thank you so much for joining us, and

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Speaker 1: I'm thinking of your sister and everyone out in La

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Speaker 1: dealing with this me too.

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Speaker 2: Thank you very much.

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Speaker 1: This is the Big Take from Bloomberg News. I'm Sarah Holder.

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Speaker 1: This episode was produced by Julia Press. It was edited

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Speaker 1: by our senior producer Naomi Shavin, Racy Samuelson, and Brian Eckhouse.

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Speaker 1: Special thanks to Michelle maw for sharing her reporting. It

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Speaker 1: was mixed and sound designed by Alex Sugiura. It was

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Speaker 1: fact checked by Adrian Atapia. Our senior editor is Elizabeth Ponso.

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Speaker 1: Our executive producer is Nicole Beamster. Bor Sage Bauman is

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Speaker 1: Bloomberg's head of podcasts. If you like this episode, make

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Speaker 1: for listening. We'll be back tomorrow