Most Americans don’t often feel sorry for the Hollywood stars and multimillionaires living in Pacific Palisades, but now may be such a time. Not only have many of the residents of the upscale Los Angeles neighborhood lost their homes—a very significant percentage of them also stand to lose their home insurance. They are not alone. With geopolitics worsening, underwriters have for years been suspending insurance for politically linked risks, including doing business in countries such as Russia and China. Now, it seems, living in certain areas could become an uninsurable luxury, too.
When I first stayed with friends in Pacific Palisades about 20 years ago, I was amazed to see the daily rhythm of the residents leaving their homes during the day and an armada of housekeepers, contractors, and gardeners turning up to look after the houses, with the arrivals and departures reversing themselves in the evening. A lot of money has gone into these and other homes in Los Angeles, but Mother Nature has once again demonstrated that she’s mightier than any celebrity—and any politician for that matter.
Most Americans don’t often feel sorry for the Hollywood stars and multimillionaires living in Pacific Palisades, but now may be such a time. Not only have many of the residents of the upscale Los Angeles neighborhood lost their homes—a very significant percentage of them also stand to lose their home insurance. They are not alone. With geopolitics worsening, underwriters have for years been suspending insurance for politically linked risks, including doing business in countries such as Russia and China. Now, it seems, living in certain areas could become an uninsurable luxury, too.
When I first stayed with friends in Pacific Palisades about 20 years ago, I was amazed to see the daily rhythm of the residents leaving their homes during the day and an armada of housekeepers, contractors, and gardeners turning up to look after the houses, with the arrivals and departures reversing themselves in the evening. A lot of money has gone into these and other homes in Los Angeles, but Mother Nature has once again demonstrated that she’s mightier than any celebrity—and any politician for that matter.
The Angelenos who have lost their homes or businesses, or whose homes or businesses have been damaged, will be compensated by their insurers. That cost is already enormous. “Expectations of economic losses stemming from the fires have more than doubled since yesterday to closer to $50 billion, and we estimate that insured losses from the event could exceed $20 billion (and even more if the fires are not controlled),” JPMorgan wrote to clients on Jan. 9, according to the Financial Times.
Decidedly different factors have caused these ballooning costs and losses. “The area between forests and urban areas in places like Los Angeles is where wildfires spread easily,” said Cameron Rye, the head of modeling research and innovation at the global insurance broker WTW. “And the value of such properties in the LA area is growing. Plus we have climate change. January is not the traditional wildfire season in California.” And it’s not just the fact that Angelenos have ever more expensive homes in areas ever more exposed to wildfires; the cost of rebuilding is growing, too—largely due to increased costs for materials.
Already last year some insurers had concluded that the risk in the Los Angeles area was unsustainable. State Farm, for example, decided not to renew home insurance policies in some of the city’s toniest neighborhoods, and across California the percentage of home insurance policies being dropped has grown for several years, the New York Times reports. “A majority of the insurer’s customers in neighborhoods in West Los Angeles as well as in or near the Santa Monica Mountains including Bel-Air, Pacific Palisades and Woodland Hills are going to lose their coverage,” the Los Angeles Times reported last April.
The Times revealed that 69.4 percent of State Farm’s policyholders in Pacific Palisades stood to lose their home insurance, along with 61.5 percent of policyholders in only slightly less affluent Brentwood—home to LeBron James and other A-list celebrities—and similar percentages in surrounding areas. It’s not clear how many of these homeowners managed to get coverage from other insurers.
On January, State Farm announced that it would offer existing customers in the fire-stricken areas renewals for another term but said nothing about what would happen after that. (Rather bafflingly, insurance in pricey LA neighborhoods is extremely cheap: In 2023, homeowners in Pacific Palisades paid a median insurance premium of $5,450, the same as homeowners in New Orleans’s low-income Lower Ninth Ward, where the average home is worth less than 5 percent of the typical Pacific Palisades home, Reuters reports.)
But even if price is no object, Angeleno homeowners will be stranded if insurers keep pulling out. The state-organized California FAIR Plan—a home insurer of last resort—saw its enrollment in Pacific Palisades nearly double between 2023 and 2024, the New York Times reports, but it now risks running out of money.
Florida is battling the same problem. Over the past five years, the number of homes insured by Florida’s version of California FAIR—Citizens Property Insurance Corp.—has risen threefold, CNN reports. Gov. Ron DeSantis warned last year that Citizens was “not solvent” and couldn’t function with millions of people enrolled “because if a storm hits, it’s going to cause problems for the state.”
Because backstop programs such as Citizens can’t charge commercial home insurance rates, they face financial collapse when natural disaster strikes. To avert such a situation, Citizens has been trying to shed customers. If financial disaster were to occur, Citizens could levy a so-called hurricane tax on every Florida resident, local TV station WPBF 25 News reports. That would clearly not sit well with most residents.
The problems afflicting homeowners in charming but climate change-exposed parts of the United States are mirrored by the ones afflicting businesses in increasingly geopolitics-exposed parts of the world. At virtually the same time as climate change-related perils are suddenly making life uncomfortable for people who thought they could live wherever they liked, geopolitically linked perils are making life uncomfortable for companies that thought they could do business wherever they liked.
The past three-or-so decades of globalization were only possible because political-risk insurers underwrote that risk as Western companies expanded to countries that were not mature liberal democracies. Political-risk insurers (there are around 60, virtually all of which are based in Western countries) provide the specialist policies that cover businesses against virtually every politically motivated risk—from nationalization to war.
But today’s geopolitical tensions are so intense that underwriters can no longer take on the risk. As I reported in Foreign Policy three years ago, when Russia amassed troops on the Ukrainian border, political-risk underwriters withdrew coverage from Ukraine. When Russia invaded, underwriters stopped insuring political risk in Russia and Belarus, both because the countries were becoming too politically risky (think expropriated aircraft fleets and seized companies) and because insuring in Russia could mean violating sanctions.
Even China has become too risky. Barely any political-risk insurers are willing to underwrite new policies in China anymore. The very few that do impose a long list of criteria—and only insure companies in sectors they consider benign.
That makes these countries a bit like Pacific Palisades and the Florida coast—still incredibly attractive to many but worryingly risky. In fact, insurers’ realization that political risks are growing so fast that they can’t be insured against is clashing with companies’ realization that they need insurance against these very risks.
With geopolitical tensions growing fast, other countries could soon join Russia in becoming uninsurable. Belarus is practically already uninsurable; Venezuela, too. “This widening gulf between the increasing demand and constrained supply has created gaps across specific segments of the political-risk insurance market,” said Kai-Uwe Schanz, until recently deputy managing director of the Geneva Association, a think tank focusing on the insurance sector.
“The growing difficulty in securing political-risk insurance poses a formidable challenge to Western companies operating in volatile regions. Without adequate coverage, businesses face heightened exposure to threats such as expropriation, sanctions and supply-chain disruptions. These risks could compel companies to curtail operations or exit certain markets altogether.”
Indeed, access to political-risk insurance could one day be limited to countries that are on somewhat friendly terms with the West—not because insurers take ideological positions but because countries aligned with Russia and China pose too severe a risk for underwriters.
We have just completed a sunny chapter in the history of the Western world: a period in which citizens could live anywhere they wanted because they thought they could ignore climate change and where businesses could operate anywhere they wanted because they thought they could ignore geopolitics.
Perish the thought that Pacific Palisades would in any way resemble Vladimir Putin’s Russia. But from an insurance perspective, they’re both becoming untouchable.
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