Three Things (1/1)

Insurers on edge

Risk rising … The Los Angeles wildfires are shaping up to be the most expensive in U.S. history, with losses projected to reach $50 billion—roughly the entire state budget of Pennsylvania last year. As flames continue to engulf homes, businesses, and infrastructure, this unprecedented disaster is sparking concerns about the long-term financial viability of insuring properties in California and other high-risk areas.

Insurers have been bracing for this very scenario for years. Wildfire-related claims have risen dramatically, with losses climbing nearly 20% annually over the past decade. In response, companies like State Farm and Allstate (ALL) have scaled back operations in California, citing the inability to balance soaring risks with regulatory limits on premium increases. For homeowners in fire-prone areas, options are shrinking. Many now rely on the California FAIR Plan, a bare-bones insurance safety net with limited coverage.

Incidentally, just days before this week’s calamity (though not nearly in time)—on Dec. 30—California introduced new rules requiring insurers to offer expanded coverage in wildfire-prone areas, aiming to stabilize the state’s insurance market. These include:

Research suggests that climate change has amplified the frequency and intensity of wildfires, transforming insurance risk models and reshaping the industry. Insurers are using advanced analytics to predict losses and diversify their portfolios, but these strategies mean higher premiums and reduced availability of coverage.

Editor’s Note: While Three Things focuses on the business angle of these events, our thoughts and sympathy are with our friends and community members in Los Angeles who are directly impacted by the devastating wildfires.

Investors revisit retail

Real estate reset … Commercial property investors are rediscovering retail, but this time they’re choosing practicality over flash. A Wall Street Journal report highlights a growing preference for retail spaces anchored by everyday essentials, like grocery stores and neighborhood strip malls, which have held up well despite economic uncertainty. In 2023, these types of retail properties saw their highest acquisition levels in five years.

One key factor driving this trend is the shift to hybrid work schedules. Remote work has changed shopping patterns, spreading consumer visits across more days instead of the typical weekend rush. According to insights firm Placer.ai, foot traffic at retail centers increased by 3.1% in 2024, with superstores like Walmart (WMT) and Target (TGT) drawing consistent crowds thanks to their convenience and range of offerings. 

Colliers (CIGI) corroborates this data, indicating that workers who split their time between home and office are now running errands during the day, boosting midday traffic to stores that meet their immediate needs.

High interest rates and stricter lending conditions have made glitzy but risky malls less attractive. On the other hand, necessity-driven retail properties, offering consistent traffic and steady income, are gaining favorability in uncertain times.

EBay gets Meta boost

Marketplace merger … EBay's (EBAY) stock has jumped more than 10% this week after the company announced its listings will now appear on Meta’s (META) Facebook Marketplace. This new partnership expands eBay’s reach, enabling sellers to tap into Facebook’s massive user base while aligning with evolving e-commerce trends.

The collaboration is particularly significant in the European Union, where stricter digital competition rules are pressuring platforms to offer broader marketplace options. Meta’s integration of eBay listings adds diversity to its Marketplace offerings, benefitting users and eBay alike.

eBay, founded in 1995 as an online auction site, went public in 1998. Over the years, it has evolved from a niche bidding platform into a global e-commerce giant with $10.3 billion in annual revenue last year. It now offers a wide variety of products, focusing on fixed-price listings while maintaining its roots in collectibles and secondhand goods.

Investors see the Meta partnership as a win for eBay. By gaining exposure to millions of Facebook users, eBay strengthens its position in the competitive e-commerce landscape. Monday’s stock surge reflects confidence in this move, which could drive both user engagement and revenue growth.

This deal showcases how tech companies are adapting to regulatory changes while finding innovative ways to boost market presence. For eBay, it's a step toward expanding its digital footprint while leveraging Meta’s vast social ecosystem.

One more thing: Kroger (KR) has agreed to pay Kentucky $110 million for its role in the opioid epidemic after failing to monitor or prevent the over-distribution of painkillers in the state, which led to widespread addiction and thousands of overdose deaths. Half the settlement will fund local governments, while the other half supports statewide addiction treatment and prevention programs.