Climate Crisis: California's deadliest wildfire

Yahoo Finance's Akiko Fujita joins The First Trade to discuss the impact of California's deadliest wildfire in the latest episode of the series 'Climate Crisis.'

Video Transcript

BRIAN SOZZI: Our series examining the impact of climate change continues, with a look at how mounting climate-related claims are forcing insurance companies to rethink their business models. Yahoo Finance's Akiko Fujita joins us now. Akiko?

AKIKO FUJITA: Well, Brian, insurance companies have always been in the business of managing risk. But the scale of those climate-related risks and the costs associated with them are upending traditional business models. And that's particularly true in California.

BECKY NELSON: I saw the flames. I called him. I told him don't come this way. It was on fire.

AKIKO FUJITA: This is what's left of Becky and Lee Nelson's home--

BECKY NELSON: You'd come into the dining area. And the kitchen was up front here.

AKIKO FUJITA: --a dream home built over four decades--

LEE NELSON: Nice big closet, 8 foot by 15 foot closet.

BECKY NELSON: Yeah, my closet was cool. It was the best closet ever.

AKIKO FUJITA: --now an empty plot of land. What did this space represent to you?

LEE NELSON: 40 years of hard work. It was really comfortable here.

AKIKO FUJITA: That all changed with the Camp Fire, November 2018, the worst fire in California history. Flames that tore through this community were so fierce, it devoured 95% of it in a matter of hours. Paradise lost nearly 19,000 homes that day. 85 people were killed. Becky's sister was one of them.

BECKY NELSON: When the chaplain came to tell me about her passing in the fire, I asked about that. And I said when did you get the call to get her? And he said 9:30 that day. And then I said, and when did you get to her? And he said Saturday, three days later.

JOE EARLEY: And all this was built up, like commercial things on both sides. There was a hotel over there.

AKIKO FUJITA: Lawyer Joe Earley says slow insurance payouts have dragged recovery here. He's helping thousands of residents file their paperwork--

JOE EARLEY: So this was our front door.

AKIKO FUJITA: --even as he looks to claim his own losses, including his home.

JOE EARLEY: You have to stay involved, deeply involved. You have to look at your policy, for instance. You have to read that policy and say, wait a minute, we have coverage for this. Or you're not including this. You're ignoring that.

How do most people do that? They just-- they've never looked at their insurance policies before. It's not easy. I mean, I'm a lawyer, and I look at that and go what are you trying to say?

AKIKO FUJITA: Those with insurance are considered lucky. Wildfire victims are being victimized again as insurance companies begin to drop policies of those most exposed to the fire risk.

RICARDO LARA: There's no doubt that we've had a record number of filings from insurance companies who are now trying to reassess their portfolios. The fact is over the last couple of years, there's been close to $25 billion in losses for the insurance industry. We hear stories over and over again of so many Californians investing thousands of dollars in their property, and yet they still get dropped from their insurance company.

AKIKO FUJITA: Insured losses for global natural disasters topped $225 billion in 2018, one of the costliest years on record.

SEAN KEVELIGHAN: We're focusing on the four primary natural catastrophes.

AKIKO FUJITA: Sean Kevelighan with the Insurance Information Institute says insurance companies are scrambling to update their risk models amid soaring losses.

SEAN KEVELIGHAN: Loss costs have increased from the '80s over 660%. So for insurers, we've been in the business of managing risk for 300 years. So this is an increase in risk. How do we help ourselves, in terms of our business, and make sure we're operating our businesses right? But more so, how do we help the customer, and make the customer more resilient in these increasing risks?

AKIKO FUJITA: Those risks prompted Insurance Commissioner Lara to impose a one-year moratorium in December, banning insurers from dropping customers. He's now partnering with the United Nations to develop a sustainable insurance roadmap for other governments to follow.

RICARDO LARA: Looking at what are proper investments for insurance companies to be doing to get us to our Paris Climate Accord agreement? And also, what are divestments that we want? What are underwriting guidelines? Should we be underwriting maybe coal facilities in California?

AKIKO FUJITA: Back in Paradise, few are returning to rebuild. Its population is just one third of what it was, with much of the town in limbo, just like Becky and Lee. Are you planning to rebuild here?

BECKY NELSON: We haven't decided. We really didn't have enough coverage to handle all that, and put our house back to where-- back in its original form. So it's a bit of a mountain to climb.

AKIKO FUJITA: Now insurance carriers are now juggling a new risk associated with the coronavirus. Lloyd's, for example, says it expects to pay out anywhere from $3 to $4.3 billion to its customers, stemming from the impact of this pandemic. But that, of course, pales in comparison to the impact from climate risks. Loss costs stemming from natural disasters last year alone topped $146 billion.

ALEXIS CHRISTOFOROUS: Wow, that's an incredible story. You obviously went out and shot that on location before the pandemic. What do you think the pandemic is going to do to these insurance companies? As it puts an even deeper strain on them, might we see some of these insurance companies really get into trouble, Akiko?

AKIKO FUJITA: Well, I think that's certainly what can be expected. We were expecting that even before the pandemic. So this really is just kind of a double whammy for these insurance companies.

Because as I pointed out there, the climate risk isn't going away. And so when you think about small businesses, for example, looking for some kind of insurance payout as they look to their closures, you're certainly seeing homeowners not being able to pay as well. That's an added layer of concern for these insurance companies, who are already trying to scramble to update their business models.

BRIAN SOZZI: All right, Akiko Fujita, thanks so much.