Depending on the carrier, they'll likely just say we can't afford the claims at a certain point and declare insolvency. If they're admitted carriers, they're backed by a state fund that promises to pay claims. It will take forever to get everybody paid and it will not be pleasant. Depending on the exposure of a carrier like State Farm, I don't know what we're looking at. Much of what is burning now is high-end stuff. The luxury carriers have really dialed-back capacity substantially in the last five years but they're still on a lot of high-end residences in SoCal.
I'd be shocked to see any kind of government bailout beyond what is guaranteed by any state fund. The carriers themselves will be insolvent.
Just about all of this. AIG basically pulled out of California entirely. They were WAY over-exposed in CA. The company said it needed to take like a 60% rate increase in one year just to get their heads above water but couldn't. By the time they got that 60% over nine or so years, they'd be even further behind than before. So they said fuck it, we're out. Looking like a smart decision tonight.
The FAIR plan is all some of the properties can get. There are limits. My understanding is that the state guarantees to pay all claims no matter what. But, residential properties are limited to $3M per location (not sure if that's for the dwelling or if that's TIV for one residence -- dwelling, personal property, other structures, etc). I worked on two opportunities for primary-Dallas residents this past fall. They both own homes in Montecito/Santa Barbara, which has been basically uninsurable for anything other than the FAIR plan. One property we quoted at $15M for dwelling and that was probably shooting pretty low.
Quoted the first guy's annual premium with Chubb Custom's special carve-out capacity reserved for our firm alone was like $225K or something with a $500K wildfire deductible ($10K for all other perils including fire that starts within the confines of the home). Not sure what his FAIR plan premium was but it wasn't anywhere close to that. This guy is a billionaire several times over and somebody many on here would recognize. We pared things down -- cut the personal property entirely and increased deductibles and got the annual premium down to $175K-ish but he still didn't want it. If his house burns down, it's a rounding error in his portfolio so he passed. He'll still own the dirt but at some point, that loses value after events like this. (Somehow he got his property designated as "commercial" which gives him $6M in coverage vs $3M for residential.
The second guy is loaded too but nowhere near the other guy. His place is worth $5.5M or so. We quoted $5M with the same deductibles and his annual premium was $92K. I asked if he'd send me his FAIR plan, which he did. He's paying about $12K annually for $2.7M for his home and about $3M TIV. I was going to go back to Chubb and ask to remove some stuff, increase deductibles but I doubt they will even respond in the wake of the last 36 hours. Needless to say, he didn't take our first offer. Maybe he's more inclined now with the current fire situation. Maybe not.
California has probably passed Florida for hardest place to find insurance with this wildfire event. Florida is even more of the wild west. So many carriers there you've never heard of just trying to time things right -- sell a bunch of policies and hope and pray for some quiet hurricane seasons. If they time it right, they cash out before having to pay big hurricane claims. If they time it wrong, they just go insolvent and a bunch of folks are left holding the bag.