California Wildfires Expected to Speed Digital Payout Adoption for Insurance Industry

The billions of dollars in damages — and the incalculable emotional toll — of wildfires raging through the Los Angeles area will reverberate for years. The wildfires have leveled neighborhoods, schools and stores, and the insured losses are estimated to top more than $20 billion, with an additional $60 billion in economic losses. The latest natural disaster represents another challenge to the state, where insurance companies have been boosting their rates or pulling out of the market entirely.

As Ian Drysdale, CEO of One Inc told Karen Webster, “People are going to have to think through how insurance works, where they want to live and how they want to live — because the cost of living in certain areas is continuing to increase.”

Regarding the economics of living in California: State Farm and other insurers had cancelled thousands of policies in the past year in the now-ravaged Pacific Palisades neighborhood. Some residents opted to use the California FAIR Plan Association, which he described as the insurer of last resort in the state. The jury’s still out if there will be bailouts to help cover the losses. But the average premium in the affected area, Drysdale said, had risen 24% in the impacted fire zone, and even the average claim paid through the One Inc platform in that area had grown by double digits year over year.

The fires, he said, “will continue to push us all towards digital payments and instant digital payments … and using AI for both underwriting and claims.”

In many areas, the cost of insurance is making it tougher to afford a home at all — and there’s a bit of conundrum here, as many mortgages simply can’t be completed (and a property purchased) without insurance in place. The rule of thumb has been that the annual cost of insurance is roughly 1% of the cost of the house — but if once-in-every-100-year events occur with more frequency, it’s a given that insurance costs will soar.

As for One Inc’s own business, Drysdale noted that his firm had been facilitating roughly $100 billion of insurance payments annually, with two-thirds of that volume consisting of claims payments to individuals and service providers.

“I expect we’re going to see a big spike here at One Inc in payouts to the LA area,” Drysdale said. The company has been enabling instant payments, which are now seeing strong demand from claims departments at several of the about 60 insurer clients One Inc works with in the state. Visa Direct and Mastercard Send are seeing strong uptake as they help deliver the fastest flow of funds to affected individuals.

The tailwind towards digital payouts was already in place, as One Inc had been bringing on two carriers a week to shift to digital channels, and the company’s network of 800,000 vendors has been using digital payments, too, which saves as much as $15 on the cost of a check and eliminates the inefficiencies of paper-based payments.

Significant Changes

Beyond the shifts in the insurance industry, Drysdale said that as LA rebuilds, companies and contractors will use more up-to-date standards than what had been in place roughly 90 years ago when the city was built up around the movie industry. There may be wholesale shifts away from LA, as those who fled the fires to seek temporary housing may wind up making their new situations permanent.

“I think this is going to drive people towards safer areas that are less expensive to insure,” Drysdale said. Wealthy people may continue to live on the coasts or in high-risk areas, but every day, middle-class individuals will gravitate toward where they can be approved for and afford a mortgage.

“We don’t know exactly what’s next,” Drysdale told Webster, adding that the fires “will cause us all to change how we think about our lives.”