E&OE TRANSCRIPT

7.30 Report, ABC

WEDNESDAY, 15 JANUARY 2025   

SUBJECT: INSURANCE, CALIFORNIA WILDFIRES 

LAURA TINGLE, HOST: But first, the devastating fires in Los Angeles have exposed an insurance crisis in America's largest and wealthiest state. Mike Lorigan, and Alysia Thomas-Sam report. 

 It's been a week since Santa Ana winds, known by some Californians as devil winds, unleashed a fiery nightmare on northern Los Angeles. 

NICK RAMIREZ, LA INSURANCE BROKER: The wind was blowing at 128km/h. When you have hurricane-force winds... And you have a fire breaking out, all hell broke loose. 

MIKE LORIGAN, REPORTER: Flames are still bearing down on neighbourhoods. While residents in others slowly return to their streets. 

JESSICA ROGERS, PACIFIC PALISADES RESIDENT: The best word for it would be apocalyptic. It's the complete decimation of an entire community, the most vibrant community within the city of Los Angeles. 

LORIGAN: In the middle of winter, at least 25 people have been killed. Dozens still unaccounted for. And more than 10,000 structures lost. Jessica Rodgers is one of those in Pacific Palisades whose home has been reduced to ashes. 

ROGERS: I live in the perfect American dream home with a white picket fence and cute little rose bush growing over the front door. The only thing  that remains that would look anything like my home is the white picket fence sort of blew off but did not burn. And what you see is - you see all the way through. So you don't... There's no house to see. 

LORIGAN: Jessica faces the confronting reality that she may not have insurance coverage. 

ROGERS: I brought all of my paperwork with me. I went through all of my paperwork and when I couldn't find anything, I then went through all of my bank accounts, and I still couldn't find anything. And I received a notice from my insurance broker saying I haven't insured you since 2023. 

LORIGAN: Jessica is now seeking legal advice. 

RAMIREZ: The reality is that it wasn't just homes that were destroyed. We have large homeowner associations that were taken down. We have large commercial buildings and large businesses that were taken down as well. So it's a destruction on a magnitude that I don't think anyone has seen here, ever. 

LORIGAN: Insurance broker Nick Ramirez has more than six clients who have lost everything. 

RAMIREZ: I have these little blue icons, these are clients of mine, who live in those areas. Right, all three of those were total losses. In this area over here, here's another total loss. Here on the left side, you can see it. 

LORIGAN: How are you dealing with the magnitude of this disaster? 

RAMIREZ: It's like a warm room in my office.  It's really challenging. 

LORIGAN: In California, there are government controls on the amount insurers can charge for premiums. In recent years, many major insurers have pulled back on homeowner's coverage in high-risk wildfire areas. 

SUSAN TEMPLEMAN, MP: The consequence of that, though, has been that insurers have not been allowed to price for the real risk  that they face there. And what that means is a whole lot of insurers have just walked away from California, and said - it's too much, it's too hard. 

RAMIREZ: They got out because of the concentration of risk. Simply put, they had too much risk in a high - in very small areas that were really dangerous. Unfortunately, as you can see, there is massive amounts of losses that still haven't been tallied yet. 

ROGERS: We had a fire Malibu a couple of years ago, and from that point forward, State Farm and many other insurance companies backed out. Every time one of my neighbours would get dropped, they would call and they'd say - I just got dropped from my insurance. Do you know of an insurer? 

LORIGAN: With major insurers pulling out of high-risk areas, more homeowners have turned to the Californian Government for coverage. The Government's policy - known as the Fair Plan, is meant to be the insurance policy of last resort. 

RAMIREZ: The California Fair Plan had at the lot of written exposure on the books, and they didn't have that much money in reserves. That's the concern right now is that there is an insurance carrier who was the second largest in the state behind State Farm that was riding a lot of risk and no-one else wanted to ride it. So the reality is, the law of large numbers - all the people who live in the high fire areas have this one insurance carrier. 

TEMPLEMAN: Ours is a whole of nation approach with a single key set of rules at a Federal Government level. In the United States, it's state-by-state which has implications for insurers on how wide they can spread their risk, but also, a huge complexity for the sector in trying to do things differently. 

LORIGAN: Federal Labor MP Susan Templeman lost her own home to a bushfire in the Blue Mountains in 2013. Last year, she went on an industry-funded tour of the US insurance landscape. Because of the global nature of the insurance industry, she believes the Californian fires will have implications here in Australia. 

TEMPLEMAN: What happens in one place has a flow-on to other insurance premiums. It's not surprising that people are warning we could see increases in premiums. 

NICK HAWKINS, INSURANCE AUSTRALIA GROUP CEO: People are sort of saying it's US $20-30 billion event, which is a very large event. And that will be shared amongst the carriers of the US as well as the global re-insurance partners that support those carriers. 

LORIGAN: The re-insurance market is the safety net for insurance companies - essentially insurance for insurance. Nick Hawkins, chief executive of Insurance Australia Group, says his company has no exposure in US. He says it's too early to tell what the exact cost of the LA fires will be on the insurance industry in Australia. 

HAWKINS: It could have some impact. I think it will be quite modest. The events, if it stays at that $20-30 billion US, which I know sounds gigantic and is terrible for the people involved, but it's a very large global market, the re-insurance market. If it stays at that sort of level, then I think the flow through impact on property insurance in Australia - there will be a little bit, but I think that it will be modest. 

LORIGAN: In LA, this crisis is far from over. More than 88,000 people remain under evacuation orders. A further 80,000 on stand by. Hot, dry winds will see the fire risk elevated until at least Thursday. Only when the danger subsides can southern California begin counting the final cost. 

You can watch this segment of the 7.30 report here.