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LA Wildfires Offer Reminder of Precarious State of Insurance

January 28, 2025 (4 min read)

The wildfires in Los Angeles this month have done more than just upended lives and destroyed millions of dollars’ worth of property. They’ve also wreaked havoc with an insurance market that was already precariously situated, as we reported in July and October of 2023.

“It will take weeks to know the full extent of damages from fires that haven’t yet subsided,” Bloomberg wrote in early January, just days after the wildfires started. “But already the Los Angeles wildfires threaten to push the fragile California insurance market closer to the brink. Seven out of the 12 biggest home insurers have limited their coverage in the state over the past two years; increased fire risk driven by climate change is part of the reason.”

A week later, the Los Angeles Times reported that the California FAIR Plan Association, the Golden State’s property insurer of last resort, “is facing its biggest crisis since the 1994 Northridge earthquake.”

The Times wrote that CoreLogic, a leading property data firm, estimated the losses from the LA wildfires could be as high as $45 billion. “Forking over billions of dollars could wipe out the plan’s $377 million in reserves, as well as $5.78 billion worth of reinsurance the FAIR Plan announced...it had,” the Times said.

Such grim news hardly comes as a surprise. In July 2023, we reported that State Farm and Allstate, two of the nation's largest insurance companies, had stopped selling property insurance to new customers in California, due to extreme wildfire risk in the Golden State caused by climate change.

In that same article, we also mentioned that these insurance problems are not limited just to California. The insurers Farmers and American International Group, or AIG, pulled out of Florida, while a fifth of homeowners in Louisiana had property insurance cancelled by their provider.

California’s insurance commissioner, Ricardo Lara (D), stepped in to try to address the issue, as we reported in October 2023, but so far he hasn’t been able to pull the state out of its latest insurance crisis.

“My heart goes out to my fellow Angelenos, Lara said in a January press release. “Our top priority is protecting Californians during this crisis and helping us recover. I am using my moratorium powers to prevent insurance companies from canceling or non-renewing policies in wildfire-impacted areas, so people don’t face the added stress of finding new insurance during this horrific event. I am working on all fronts to make sure wildfire victims get the benefits they are entitled to, and they get it as soon as possible.”

There’s only so much California’s insurance commissioner can actually do in this situation, although Lara did recently issue regulations to make it easier for insurers to profit in the state by allowing them to use catastrophe models that incorporate rising temperatures and droughts for rate setting and to pass along reinsurance costs to customers in premiums.

LA Fires Touch Off Flurry of Bills that Could Impact Property Insurers

Since the start of the year—and possibly the costliest wildfire in U.S. history began in Los Angeles—at least 15 states have introduced nearly 80 measures dealing with wildfires and insurance. Roughly a third of that legislation was introduced in Hawaii, where wildfires ravaged the island of Maui in 2023.

Legislatures Begin to Act

Greater hope for reform may lie with the legislative branch. Since the LA fires began on Jan. 7, at least 79 measures dealing with wildfires and insurance have been introduced in 15 states. They include:

  • California AB 1, by Assemblyman Damon Connolly (D), which would require the California Department of Insurance to regularly consider whether it needs to update its regulations to include additional wildfire mitigation measures.
  • California AB 234, by Assemblywoman Lisa Calderon (D), which would require the Assembly Speaker and the chairperson of the Senate Rules Committee to serve as a nonvoting, ex officio member of the California Fair Plan Association to add additional leadership to the important entity. 
  • Oklahoma HB 2011, by Rep. Daniel Pae (R), which would help fund cancer screenings for firefighters in the state.
  • Oregon SB 340, by Sen. David Brock Smith (R), which would bar insurers from canceling fire insurance policies or raising premiums by more than 3 percent if a property is located within a “wildland-urban interface.”

Even with such proposals, the LA wildfires are a stark reminder of just how much risk insurers now face thanks largely to climate change.

“Could a single event cause insurers to become insolvent? asked University of California Los Angeles climatologist Daniel Swain, “That’s the great fear.”

With the scope of the LA wildfires, that fear could be realized.

—By SNCJ Correspondent BRIAN JOSEPH

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