The Economic Toll of the Los Angeles Fires

Summary

WSJ What’s News - January 9, 2025

Episode: The Economic Toll of the Los Angeles Fires
Host: Alex Osola, The Wall Street Journal
Release Date: January 9, 2025

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Economic Catastrophe: The Los Angeles Wildfires

The centerpiece of this episode delves into the devastating wildfires ravaging Los Angeles, which are poised to become the costliest in U.S. history. Host Alex Osola introduces the topic by highlighting the unprecedented scale of destruction:

Alex Osola [00:32]: "The Los Angeles wildfires could be the costliest in US history. What that means for homeowners and the state's insurance market."

Unprecedented Financial Impact

Gene Eaglesham, the Wall Street Journal’s insurance correspondent, provides an in-depth analysis of the fires' economic repercussions:

Gene Eaglesham [01:55]: "We're seeing such high costs partly because these fires are burning some of the most expensive real estate in the country, also because the fires are spreading so fast. So these estimates doubled almost overnight. They could still rise further."

The total projected losses are nearing $50 billion, with insured losses alone exceeding $20 billion. This significant financial strain has led several insurance companies to retract their presence in California, escalating challenges for homeowners seeking coverage.

Insurance Market Turmoil

Eaglesham explains the precarious situation facing California residents:

Gene Eaglesham [02:19]: "Yes, certainly in California, the market is under a lot of strain and particularly we've seen in some of these fire prone, disaster prone areas, including, unfortunately, the Pacific Palisades, we've seen certain insurers not renew policies so pull back completely because they feel the risks are just too high."

With private insurers withdrawing, many homeowners are compelled to rely on California's Fair Plan—a last-resort insurer offering limited and costly coverage. This shift not only burdens homeowners financially but also signals deeper systemic issues within the state's insurance framework.

Climate Change and Future Risks

The conversation shifts to the broader implications of climate change on wildfire frequency and severity:

Gene Eaglesham [03:12]: "Insurers are saying that because of climate change, the frequency and severity of fires is increasing. Wildfire season is also increasing. All of this, combined with the pressures on the market from private insurers being reluctant to take on high risks, means that we're seeing more and more people going to the Fair Plan."

As wildfires become more common, the sustainability of the Fair Plan is threatened, raising concerns about long-term market stability.

Regulatory Responses and Market Stabilization Efforts

Regulators are actively seeking solutions to reverse the exodus of insurers from California:

Gene Eaglesham [03:43]: "There's a huge ongoing push by regulators to try to persuade these insurers to fully come back to the state. What we've seen is big rate increases being approved in the past. Typically, you'd never see an increase over around 7%. That's all changed now. We're seeing increases of 20%, 30% or more going through."

Additionally, new regulations permit insurers to levy higher premiums, a drastic departure from previous limits. Eaglesham emphasizes the uncertainty surrounding these measures:

Gene Eaglesham [04:21]: "The crucial thing now is whether efforts to stabilize the market are going to succeed or whether, unfortunately, the losses from this are going to derail those attempts. And then we're really into uncharted territory."

The outcome of these stabilization efforts remains to be seen, with potential long-term effects on both the insurance industry and California homeowners.

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Honoring a Legacy: Jimmy Carter’s Memorial

Shifting from economic turmoil, the episode covers the somber occasion of honoring former President Jimmy Carter:

Alex Osola [04:46]: "Today, Washington took a pause from its preparations for a new president to honor a previous one. Jimmy Carter, the 39th US president and former governor, naval officer and humanitarian who died last month at the age of a 98."

Five living presidents attended Carter’s funeral, underscoring his enduring legacy. Wall Street Journal reporter Aaron Zitner contrasts Carter’s political era with the contemporary landscape shaped by Donald Trump:

Aaron Zitner [05:29]: "Jimmy Carter lived at a time when there were still giants in the Senate and men who exercised power and reserved power for themselves... You would never see Jimmy Carter do what is done today, which is if a member of Congress steps out of line from your own party, you threaten to run a primary against them. That's a rougher kind of politics than before."

This reflection highlights the evolving dynamics of political power and partisanship in the United States.

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Additional News Highlights

Beyond the primary topics, the episode touches on several other significant news stories:

Technological Advancements: Waymo and the Robo-Taxi Race

A segment explores Waymo’s advancements in self-driving technology:

Waymo Representative [06:35]: "Imagine hailing a cab with no one in the driver's seat."

The discussion emphasizes the potential and challenges of autonomous vehicles, with insights from both Waymo representatives and WSJ reporter Aaron Zitner.

Political Unrest in Venezuela

Venezuelan opposition leader Maria Corinna Machado's detention adds to the regional political tension:

Alex Osola [07:10]: "Venezuelan opposition leader Maria Corinna Machado has been detained by President Nicolas Maduro's regime after spending months in hiding."

This development occurs amid elections where Maduro's legitimacy remains contested.

Financial Sector Developments: UBS and Credit Suisse

A significant business news piece reveals UBS's financial settlement related to Credit Suisse’s earlier tax evasion agreements:

Alex Osola [07:10]: "UBS will pay at least hundreds of millions of dollars to settle violations by Credit Suisse of an earlier agreement with the U.S. justice Department over American clients who evaded tax."

This settlement follows Credit Suisse’s 2023 guilty plea for conspiring to assist American tax evasion.

Global Economic Outlook by the United Nations

The UN revises its global economic growth forecast upward:

Alex Osola [07:10]: "The United nations says it expects global economic output to rise by 2.8% this year, up from its previous forecast of 2.7%."

However, the UN cautions that rising trade barriers could impede this growth trajectory.

Aviation Industry Update: Airbus Deliveries

Airbus reports a slight shortfall in aircraft deliveries:

Alex Osola [07:10]: "Airbus says it delivered 766 planes last year below the 770 planes it expected."

The shortfall is attributed to ongoing supply chain challenges.

Tourism Recovery in New Orleans Post-Terrorist Attack

In the wake of a tragic New Year's Day terrorist attack, New Orleans employs strategies to restore tourist confidence:

Allison Poli [08:35]: "New Orleans is now taking a page from the Las Vegas playbook, updating its messaging and adding security measures like cameras and uniformed personnel."

Poli draws parallels to Las Vegas's response to the Route 91 Harvest Festival mass shooting, aiming to balance safety enhancements with encouraging tourism during peak periods such as the Super Bowl and Mardi Gras.

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Conclusion

Alex Osola wraps up the episode by summarizing the day's top stories, emphasizing the multifaceted challenges and developments shaping the economic and political landscapes both locally in Los Angeles and globally.

Alex Osola [10:04]: "And that's what's news for this Thursday afternoon."

Produced by Anthony Bansy and Pierre Bienname, with supervising producer Emily Martosi and deputy editor Chris Zinsley, this episode of What’s News provides a comprehensive overview of events impacting markets and society at large.

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For more insights and updates, tune in to the next episode of What’s News by The Wall Street Journal.

Transcript

[Narrator]

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[Alex Osola]

The Los Angeles wildfires could be the costliest in US history. What that means for homeowners and the state's insurance market.

[Gene Eaglesham]

The crucial thing now is whether efforts to stabilize the market are going to succeed or whether, unfortunately, the losses from this are going to derail those attempts.

[Alex Osola]

And five U.S. presidents gather in Washington to honor Jimmy Carter. Plus, in the wake of its New Year's Day attack, New Orleans is taking a page from Las Vegas playbook to bring back back tourists. It's Thursday, January 9th. I'm Alex Osola for the Wall Street Journal. This is the PM edition of what's news, the top headlines and business stories that move the world today. The fires in and around Los Angeles continue to wreak havoc. They've already killed at least five people and have destroyed or damaged thousands of buildings. And experts are just starting to get a handle on the fire's economic toll. Some analysts are predicting that they could be the costliest in US history, with total losses pegged at close to $50 billion. 20 billion of that or more is estimated to be insured losses, which could make this disaster a very expensive one for insurance companies, some of which have already pulled back from California. I'm joined now by Gene Eaglesham, who covers insurance for the Wall Street Journal. Gene, what makes these fires potentially so costly?

[Gene Eaglesham]

We're seeing such high costs partly because these fires are burning some of the most expensive real estate in the country, also because the fires are spreading so fast. So these estimates doubled almost overnight. They could still rise further.

[Alex Osola]

The analysts are saying private insurers can.

[Interviewer]

Decide simply not to cover some properties if they want to. What options do California residents have beyond that?

[Gene Eaglesham]

Yes, certainly in California, the market is under a lot of strain and particularly we've seen in some of these fire prone, disaster prone areas, including, unfortunately, the Pacific Palisades, we've seen certain insurers not renew policies so pull back completely because they feel the risks are just too high. That makes it extremely tough for policyholders, a lot of them, increasing numbers, are being forced to use the state's plan, which is called the Fair Plan. Now, that's an insurer of last resort. It's designed to offer fire coverage to people who can't get it elsewhere. That means it tends to be very expensive. The coverage is not that comprehensive and often you have to buy an additional policy to supplement it.

[Interviewer]

My understanding is that the frequency of these fires is not necessarily anticipated to decline in the near future. What could that mean for Fairplan?

[Gene Eaglesham]

Insurers are saying that because of climate change, the frequency and severity of fires is increasing. Wildfire season is also increasing. All of this, combined with the pressures on the market from private insurers being reluctant to take on high risks, means that we're seeing more and more people going to the Fair Plan. Now, they're trying to figure out a way to address that, to stabilise the market, but they haven't got there yet.

[Interviewer]

Are there any efforts being made to get insurers back into the state?

[Gene Eaglesham]

There's a huge ongoing push by regulators to try to persuade these insurers to fully come back to the state. What we've seen is big rate increases being approved in the past. Typically, you'd never see an increase over around 7%. That's all changed now. We're seeing increases of 20%, 30% or more going through. That's unheard of. Also, we're seeing the regulators have passed a series of rules that came to effect very recently that will essentially allow insurers in future to charge higher premiums.

[Interviewer]

And what might all this mean for consumers who are looking to rebuild, really.

[Gene Eaglesham]

For homeowners as a whole in the state going forward? The crucial thing now is whether efforts to stabilize the market are going to succeed or whether, unfortunately, the losses from this are going to derail those attempts. And then we're really into uncharted territory.

[Alex Osola]

That was Wall Street Journal reporter Jean Eaglesham. Thanks, Jean.

[Gene Eaglesham]

My pleasure.

[Alex Osola]

Today, Washington took a pause from its preparations for a new president to honor a previous one. Jimmy Carter, the 39th US president and former governor, naval officer and humanitarian who died last month at the age of a 21. Gun salute, honored Carter as his casket departed from the Capitol en route to the Washington National Cathedral. Carter's funeral, attended by the nation's five living presidents, comes as Washington is preparing for Donald Trump's inauguration later this month. As Wall Street Journal reporter and editor Aaron Zitner notes, the two men both came into office as political outsiders at a time of disillusionment with government. But he says the political moment in which they operated could not have been more different.

[Aaron Zitner]

Jimmy Carter lived at a time when there were still giants in the Senate and men who exercised power and reserved power for themselves. They were very jealous of the prerogatives of Congress and the Senate. And this is a moment where Donald Trump has dominating control of his political party and a much weaker Congress, partly because Congress is so closely divided in the number of Democrats and Republicans, but also just the fact Trump has accrued power relative to Congress and has such a commanding control of his party. You would never see Jimmy Carter do what is done today, which is if a member of Congress steps out of line from your own party, you threaten to run a primary against them. That's a rougher kind of politics than before.

[Alex Osola]

US Stock markets were closed today to mark Carter's memorial coming up after a New Year's Day attack, how New Orleans is making tourists feel safe again. That and more after the break.

[Allison Poli]

Taxi.

[Waymo Representative]

Imagine hailing a cab with no one in the driver's seat.

[Narrator]

Welcome. Please buckle your seatbelt and enjoy the ride.

[Waymo Representative]

Self driving car company Waymo has spent billions developing its tech.

[Aaron Zitner]

What's changed is machine learning.

[Allison Poli]

I'm not really thinking about who's driving.

[Waymo Representative]

But will this big bet pay off for Waymo and its parent, Google owner Alphabet? Find out in Waymo and the Robo taxi race, a new series in the WSJ's Future of Everything feed.

[Alex Osola]

Venezuelan opposition leader Maria Corinna Machado has been detained by President Nicolas Maduro's regime after spending months in hiding. Machado made a surprise appearance at an anti Maduro protest in Caracas today, after which two people close to Machado said government security agents took her away despite evidence that Maduro lost an election in July. Maduro's inauguration is planned for Friday, and his regime has ramped up repression ahead of the ceremony. In business news, we exclusively report that UBS will pay at least hundreds of millions of dollars to settle violations by Credit Suisse of an earlier agreement with the U.S. justice Department over American clients who evaded tax. That's according to people familiar with the matter, one of which said the settlement could come as soon as this week. Before it was bought By UBS In 2023, Credit Suisse had pleaded guilty to conspiring to help thousands of Americans cheat on their taxes. The United nations says it expects global economic output to rise by 2.8% this year, up from its previous forecast of 2.7%. The upgrade reflects higher expectations for growth in the US and China, as well as a boost to investment from central banks, lowering interest rates. But the UN Warned that growth could be weaker if rising trade barriers like tariffs stall the decline in inflation and cause central banks to hold back on rate cuts. And Airbus says it delivered 766 planes last year below the 770 planes it expected. The slight miss reflects the persistent supply chain hurdles that have held back production for New Orleans. The new year started with a tragedy when 14 people lost their lives in a terrorist attack on January 1. After horrific events like that, cities that rely on tourism don't want visitors to just be safe, but feel safe, too. Our travel reporter Allison Poli says New Orleans is now taking a page from the Las Vegas playbook, updating its messaging and adding security measures like cameras and uniformed personnel.

[Allison Poli]

After the Route 91 Harvest Festival mass shooting, which was the deadliest in U.S. history, Vegas immediately changed its messaging. It was no longer about what happens here, stays here. It was very somber and focused on unity. Vegas also increased its security presence to make people feel safer when they were traveling. New Orleans is taking a look at this playbook, so there's an increased security presence and they're inviting people to be part of the recovery by spending their money in New Orleans, encouraging people to keep their trips, not to cancel them. There are sure some big events coming up with the super bowl next month and with Mardi Gras. So this is a peak tourism time for New Orleans. So they're hoping that there will be no effect on tourism. It remains to be seen, but right now the tourism officials say no big meetings or conventions have been canceled.

[Alex Osola]

And that's what's news for this Thursday afternoon. Today's show was produced by Anthony Bansy and Pierre Bienname, with supervising producer Emily Martosi and deputy editor Chris Zinsley. I'm Alex Osola for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for.