It is completely clear that the wildfires in California have created a massive financial loss that will require billions of dollars to mitigate. It is equally clear that no one wants to fund what is needed. While many properties are at least partially insured, the amount of damage to the area’s infrastructure is still being calculated and is almost certain to be a very big number.
At the end of the day, after the smoke clears, we, the American public is going to pay, one way or another.
- To the extent that the insurance industry pays claims, after exhausting their delay, deny, defend strategy, premiums will increase.
- Efforts to sue public utilities for alleged equipment failures will, to the extent that the suits are successful, result in higher utility bills.
- Financial support from government will be paid for through more deficit spending and/or higher taxes.
Investors will have to consider the likely distribution of these costs and seek to assess how wide the net will be spread. That is, which consumers are likely to be hit the hardest. Since the US is basically a consumer driven economy, it is important to note that all of these revenue strategies are, to varying degrees, regressive.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
