Insurance company overwhelmed by cost of California wildfire, goes out of business

https://thinkprogress.org/cost-of-california-wildfire-has-caused-an-insurance-company-to-go-out-of-business-47af82955e80/

Kyla Mandel
Dec 6, 2018

The devastating California Camp Fire has caused such widespread damage that it has put at least one insurance company out of business.

The local Merced County Insurance Company — whose client base is overwhelmingly located in the wildfire-prone Sacramento Central Valley area — announced this week that it was closing shop because it can’t pay out the expected fire-related insurance claims.

The Camp Fire is the state’s most deadly and destructive fire on record, having destroyed almost as many structures as the subsequent 10 other worst fires in California’s history combined; thousands are without homes.

A judge on December 3 approved the company’s liquidation proceedings. Documents filed by the company show it expected $64 million in outstanding liabilities in Paradise — the town effectively wiped out by the Camp Fire. The insurance company’s assets, however, sit at just $23 million.

Individuals who need to file claims due to the fire shouldn’t be affected though — the California Insurance Guarantee Association (CIGA) will assume any outstanding claims. The CIGA was created by state law to protect policy holders in such a situation.

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As climate change causes events such as hurricanes and wildfires to become more extreme, the potential for catastrophic property damage rises in tandem. This, in turn, impacts insurance companies which have to pay out larger and larger claims the worse the damage gets. Those rising costs inevitably result in higher monthly premiums for policy holders.

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A study released in March, for instance, showed that between 1990 and 2010, 43 percent of the new homes built across the country were in areas that are increasingly prone to wildfires.

And in January, a California regulator warned that more frequent and intense wildfires was making it harder for homeowners to get, and keep, insurance coverage. Bloomberg also reported that despite devastating wildfires in 2017, local officials are issuing permits for homes to be rebuilt without updating building codes to protect from future risks.

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https://www.cnn.com/2018/12/04/us/camp-fire-insurance-company-liquidation/index.html

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Judge Brian McCabe's decision allows the California Department of Insurance to take control of Merced. According to court documents, the state's Conservation & Liquidation Office will start liquidating what's left of the company.

Unlike with bankruptcy, where a business or individual can start over, liquidation means there is no hope for a company's recovery.
Fortunately for Merced's policyholders, they are covered by the California Insurance Guarantee Association, which "protects resident claimants in the event of an insurance company insolvency."

But the association has maximum benefit limitations, according to Merced.
"If it ends up that you have a claim in excess of CIGA's limits," the company said, "the excess will be a claim against the assets of Merced."