California's destructive wildfires could pressure home insurers operating in the state, coming as insured losses have the potential to approach around $6.8 billion from the current fires.
More than 9,700 homes have been destroyed in the catastrophic Camp Fire still burning in Northern California and as of Friday evening at least 71 were confirmed dead and more than 1,000 still unaccounted for. Further south in the state, nearly 800 structures were destroyed or damaged in the Woolsey Fire, a blaze in Ventura and LA counties with three confirmed fatalities.
The two big November fires in California follow the state's expensive fire season in 2017 when insurers were hit by underwriting losses of nearly $13 billion from wildfires and mudslides. Despite the big losses, the insurers won't be able to immediately pass along the cost to customers since the state has a highly regulated industry.
"They are not permitted to take all the given years losses and cram them into next year's rates," California Insurance Commissioner Dave Jones told CNBC in an interview Friday.
A state ordinance limits any immediate rate hikes and instead spreads repayment of property and casualty insurance payouts over the next twenty years. Insurers also have to justify their rate insurance increases to the state insurance regulator but are entitled to make what Jones calls a "modest profit."
"California wildfires are becoming more commonplace, and regulatory risk is on the rise," S&P Global Ratings credit analyst Brian Suozzo said in a report this week. "In addition, the tight California regulatory body could make it challenging for insurers to obtain adequate future pricing."