Australia’s insurers better prepared than California, as fires fan flames of premium pain

Devastating fires on the US west coast have shown the stark difference between American and Australian insurance.

Multiple bushfires fuelled by intense winds are burning across Los Angeles County. Picture: Mario Tama/Getty Images/AFP

Australia’s insurers have little to learn from the dysfunctional Californian insurance market, with the co-chair of the Parliament’s Friends of Insurance Group saying the crisis gripping uninsured Los Angeles homeowners was unlikely to be repeated here.

Labor MP Susan Templeman, who went on an insurance industry tour of California in mid-2024, said it was clear California’s insurance market was bogged down by inflexible pricing and regulation which was leading to worse outcomes.

The industry tour saw representatives of California and Australia’s insurance industry discuss fires and floods.

Member for Macquarie Susan Templeman Picture: Tim Hunter

Ms Templeman, who has represented the seat of Macquarie since 2016, said the California tour alongside heavyweight representatives of Australia’s insurance sector, showed American customers were being exposed to more risk with many unable to access affordable catastrophe cover.

She said the American experience showed the key priority to making insurance affordable was government and industry working together and not against each other.

“We saw the consequences of government decisions that were not done with the understanding or expertise of the insurance sector,” Ms Templeman said.

Labor MP Jason Clare, Federal Member for Macquarie Susan Templeman and Senator Katie Gallagher, speaking with cattle farmer Emanuel Degabriele and other farmers, as they visit a turf farm in Cornwallice outside Richmond which was affected by floods. Picture: Tim Hunter.

The fires which have smashed Los Angeles in recent days are expected to cost the insurance industry more than $US20bn ($32bn), according to JP Morgan analysts, in what may prove among the most expensive insurance events in US history.

But the crisis has also highlighted the highly dysfunctional state of America’s insurance market, which is regulated on a state-by-state basis in America, unlike Australia where the sector is subject to national oversight.

In Australia states set taxes on insurance, but two main regulators oversee the sector.

“We should be very proud of having that, it does mean we’re not in the same situation as neighbouring states in the US,” Ms Templeman said.

Insurers have withdrawn from the Californian market en masse in response to the unworkable arrangements in the state, which restricts price rises companies can pass through to customers.

The industry has also shifted responsibility for insuring high-risk customers to California’s FAIR plan, a government-backed insurer.

Ms Templeman said it was clear, although governments may make decisions with good intentions, it was better to work with the sector to ensure homes most at risk could access cover.

Houses burned down in the Palisades fire along the Pacific Coast Highway in Malibu, California. Picture: Cecilia Sanchez/AFP

She said California had signalled it would now follow similar moves in Australia to recognise steps taken by homeowners to protect their properties from fires and floods.

Ms Templeman said Australia also required homeowners building in risky areas to use far more resilient methods and materials in the event of fires, something insurers were reflecting in their pricing.

“I really struggle to see things in the United States that we should adopt here,” she said.

Insurance Council of Australia climate, social policy general manager Alix Pearce said Australia’s insurance industry was better placed to reflect the risks of wild weather in its policy pricing.

Ms Pearce, who also went on the Californian insurance tour, said California’s market was hampered by rules preventing insurers reflecting catastrophe risks in premiums.

“These challenges, coupled with climbing risks driving billions of dollars in losses over the last decade, have seen many major insurers pause or scale back their home insurance coverage in parts of California, including in those areas of Los Angeles currently ablaze, as regulations prevent insurers from being able to accurately and competitively price the underlying risk.”

But, Ms Pearce said both Australia and North America were facing “strikingly similar challenges around affordable and available home insurance”.

“Rapidly growing populations and growing asset values in areas that are vulnerable to extreme weather is testing the overall durability of the insurance market,” she said.

“The study tour made clear that putting downward pressure on premiums requires the implementation of policies and programs that drive down risk.”

QBE CEO Andrew Horton (right) and Chairman Michael Wilkins at their AGM in Sydney. Picture: John Feder

The fires in California are expected to have limited impact on Australian insurers, however global reinsurance markets and ASX-listed global underwriter QBE are likely to suffer some cost from the catastrophe.

QBE, which writes cover across Australia, Europe and North America, has been moving to rapidly roll-off much of its American mid-market book, which has proven unprofitable.

The insurer said it was too early to comment on potential exposures from the Los Angeles fires.

QBE’s AUSPAC chief underwriting officer Andrew Ziolkowski attended last year’s California tour, but declined to comment.

Global underwriters, which write cover for Australia’s major insurers, are expected to be affected by the fires which may flow through to further price pain for local customers.

Macquarie analysts said QBE’s success in 2025 hinged on its ability to exit North America’s middle-market “with minimum pain”.

The insurer has planned to chop as much as $US500m from its North American business and sack 150 staff as it scales back its market presence.

In a note to investors Macquarie said QBE was likely to beat its catastrophe guidance by circa $US170m, with fewer disasters likely to lead to less losses than the $1.28bn loss budget.

Shares in QBE fell 16c on Friday, trading down 0.8 per cent to $19.47.

Originally published as Australia’s insurers better prepared than California, as fires fan flames of premium pain