This article was originally published by Michael Snyder at The Economic Collapse Blog. 

Will the insurance industry be able to survive tens of billions of dollars in losses from the Los Angeles fires?  There have been catastrophic fires in California before, but never anything quite like this.  So what is going to happen to homeowners if their insurance companies go bankrupt and cannot pay?

Even the ones that do not go bankrupt are really going to struggle.  I have a feeling that some of them will delay payouts for an extended period of time and will deny as many claims as they possibly can in a desperate attempt to survive.  In the end, it is likely that vast numbers of homeowners who were counting on their insurance companies to bail them out will be left holding the bag.

It is projected that total economic losses from these fires could reach 150 billion dollars, and the insurance industry will be hit with approximately 20 to 25 billion dollars of those losses…

Analysts at Evercore ISI have estimated that insurance industry losses from the Los Angeles wildfires will be in the $20 billion to $25 billion range, and also expect the fires to be treated as one event which could help primary carriers reach their reinsurance coverage.

That is going to be a really tough pill to swallow.

One expert is warning that we are literally “on the edge of a major financial crisis for the insurance industry”…

“I think we’re on the edge of a major financial crisis for the insurance industry,” says Daniel Aldrich, a Northeastern professor, director of the university’s Resilience Studies Program and co-director at the Global Resilience Institute.

I agree with him.

I don’t see how the industry is going to avoid a historic crisis in the aftermath of these fires.

In particular, Politico is telling us that this “could be the final straw that breaks California’s insurance market”…

Wednesday’s firestorm in a wealthy area of Los Angeles could be the final straw that breaks California’s insurance market.

The state’s insurance market has been teetering on the edge of insolvency for years thanks to catastrophic wildfires that have driven many insurers to stop writing new policies and drop existing ones.

Insurance companies are generally well-capitalized, but there is only so much they can take.

I think that it is probably inevitable that some insurers will not make it, and that would be extremely bad news for homeowners who are holding policies from those companies…

‘My concern is that the insurance companies won’t be able to handle all the claims and file for bankruptcy and that’s that. It’s scary,’ Los Angeles construction worker Ivan De La Torre, 32, whose uncle and sister both lost their houses in a fire that consumed half of Altadena, a suburb of some 40,000 people north of Los Angeles.

As hundreds of Los Angeles residents return to find homes reduced to ashes due to a devastating wave of wildfires, many are fearful that their insurance policies may not cover the rebuild cost and that future premiums will be astronomical.

Rebuilding costs are going to be insane.

Just think about how much it would cost to rebuild the home that you are living in right now.

If you are a homeowner, could you rebuild your home for what you originally paid for it?

In the vast majority of cases, the answer would be no.

In recent years, home building costs have gone into the stratosphere…

The situation is further complicated by elevated construction costs. Both material prices and labor costs have remained high since the pandemic, which could amplify the final insurance payouts.

Insurers will also face additional living expense claims, typically capped at 30% of a dwelling’s value, and business interruption losses for commercial properties.

Of course many homeowners in the Los Angeles area did not have any insurance at all, and so now they have lost everything.  Here is just one example…

The family of Chad Comey, a local musician and community organizer who’s been taking care of his disabled parents for the past several years, lost their home in Pacific Palisades to the fire.

“Chad is one of the best people I know,” wrote friend Tom Rhalter in the fundraiser he organized through GoFundMe for Comey. “Chad’s mom is paralyzed by Neuromyelitis Optica, a rare autoimmune disease, and his dad is blind.

“Chad is the best boss I’ve ever worked for and one of the kindest people I know. The fire took everything: clothes, possessions, and memories,” Rhalter continued. “His parents didn’t have insurance on the home. Chad and his family need immediate financial assistance to help recover from the fire.”

Can you imagine being in that situation?

How would you feel?

State Farm is taking a lot of heat for removing coverage from tens of thousands of homeowners last year…

State Farm said in 2023 that it would stop accepting new homeowners-insurance applications in California and then added last year that it would stop covering 72,000 homes across the state due to the growing frequency and severity of wildfires.

Comedic actor Rob Schneider ranted against State Farm last week, saying they were ‘a pile of crap for cancelling insurance policies’.

Actor James Woods, whose Pacific Palisades home was engulfed by flames and destroyed, also confirmed in a post that ‘one of the major insurance companies canceled all the policies in our neighborhood about four months ago’, an apparent reference to State Farm.

Sadly, approximately 1,600 homeowners in Pacific Palisades had their policies canceled by State Farm about six months ago…

About 1,600 policies in Pacific Palisades were dropped by State Farm in July, California Department of Insurance spokesman Michael Soller said in an Thursday email to CBS MoneyWatch. An analysis of insurance data by CBS San Francisco last year found that State Farm also dropped more than 2,000 policies in two other Los Angeles ZIP codes, which include the Brentwood, Calabasas, Hidden Hills and Monte Nido neighborhoods.

State Farm has very entertaining commercials, but this is going to be a blow to their reputation that will be very difficult to recover from.

Unfortunately, this crisis is far from over.

High winds have returned to the region, and that is going to make things very challenging for those who are fighting these fires…

Ominous winds were expected to regain strength Monday, howling through fire-blackened trees, picking up plumes of ash and smoke and further tangling efforts to tamp down the explosion of fires across Los Angeles County that have killed at least 24 people and destroyed thousands of homes and businesses.

From a big picture point of view, this disaster is yet another devastating blow in a long series of devastating blows to the U.S. economy.

How many blows can we possibly take?

Unfortunately, I have a feeling that it won’t be too long before we find out.

Michael’s new book entitled “Why” is available in paperback and for the Kindle on Amazon.com, and you can subscribe to his Substack newsletter at michaeltsnyder.substack.com.

About the Author: Michael Snyder’s new book entitled “Why” is available in paperback and for the Kindle on Amazon.com. He has also written eight other books that are available on Amazon.com including “Chaos”, “End Times”, “7 Year Apocalypse”, “Lost Prophecies Of The Future Of America”, “The Beginning Of The End”, and “Living A Life That Really Matters”.  When you purchase any of Michael’s books you help to support the work that he is doing.  You can also get his articles by email as soon as he publishes them by subscribing to his Substack newsletter.  Michael has published thousands of articles on The Economic Collapse Blog, End Of The American Dream, and The Most Important News, and he always freely and happily allows others to republish those articles on their own websites.  These are such troubled times, and people need hope.  John 3:16 tells us about the hope that God has given us through Jesus Christ: “For God so loved the world, that he gave his only begotten Son, that whosoever believeth in him should not perish, but have everlasting life.”  If you have not already done so, we strongly urge you to invite Jesus Christ to be your Lord and Savior today.