LA Wildfires: The Next Crisis—A Looming Insurance Battle?
As California Burns, Insurance Woes Add to the Struggle
As wildfires rage across Los Angeles County, attention is shifting from immediate devastation to a potential insurance crisis facing thousands of affected residents. With homes and businesses reduced to ashes, many are left uncertain whether their insurance policies will cover their losses. Experts warn that the financial toll could exceed $20 billion, making this one of the costliest wildfire disasters in California’s history.
Extent of the Destruction
The wildfires, which ignited in Pacific Palisades, have consumed 9,596 hectares (23,713 acres), according to Cal Fire. So far, at least 27 lives have been lost, and more than 12,300 homes and structures have been destroyed.
Two major fires remain active: the Palisades Fire, which is 27% contained, and the Eaton Fire, with 55% containment. The damage could surpass all previous wildfire events in terms of insured losses.
A Financial Catastrophe in the Making?
Analysts predict the LA wildfires could be the most expensive wildfire event in California’s history, surpassing the 2018 Camp Fire that caused $12.76 billion in insured losses.
Private forecaster AccuWeather estimates the total economic impact could range between $250 billion and $275 billion, making it the costliest natural disaster in U.S. history, even exceeding Hurricane Katrina’s $105 billion insured loss.
Insurance Companies Retreating from Fire-Prone Areas
Even before the fires, major insurers like State Farm and Allstate began withdrawing from high-risk California regions, leaving thousands without coverage.
By July 2024, State Farm had dropped 1,600 policies in Pacific Palisades, marking a 69.4% non-renewal rate in Los Angeles County. Between 2020 and 2022, insurers refused to renew 2.8 million homeowner policies across California, with more than 500,000 policies lost in Los Angeles alone, according to the California Department of Insurance.
Why Are Insurers Pulling Out?
In May 2023, State Farm announced it would halt new policies due to rising construction costs, increasing natural disasters, and a struggling reinsurance market. Insurers argue that California’s strict regulations, particularly Proposition 103, prevent them from adjusting rates to reflect growing wildfire risks.
The law requires insurance companies to base their rates on past catastrophe losses rather than forward-looking risk models. However, with wildfires becoming increasingly severe, insurers say these calculations are outdated. Between 2004 and 2013, wildfires destroyed an average of 653 structures annually. That number surged to 5,669 structures per year between 2014 and 2023.
Some of the most destructive fires include:
Thomas Fire (2017) – Destroyed 1,060 structures
Mendocino Complex Fire (2018) – Burned 280 structures
Camp Fire (2018) – Razed nearly 19,000 buildings
Homeowners Scramble for Coverage
With private insurers pulling out, many homeowners are turning to California’s FAIR Plan, a state-mandated insurance pool designed for those unable to obtain traditional coverage.
As of 2024, 452,000 policyholders have enrolled in the FAIR Plan. However, this coverage is limited, offering a maximum payout of $3 million, often falling short of the full rebuilding costs.
Additionally, FAIR Plan policies come at a steep price. While standard home insurance in California averages $1,480 annually, a FAIR Plan policy costs around $3,200 per year, according to Bankrate.
A Growing Insurance Gap
The lack of affordable options has left hundreds of thousands of Californians without coverage. A LendingTree report from January 2025 estimates that 806,651 homes in California are uninsured, including 154,108 in Los Angeles County alone—meaning 1 in 10 homes in LA lack insurance.
Climate Change: A Driving Force Behind the Crisis
Experts warn that the insurance crisis is tied directly to climate change. The U.S. Environmental Protection Agency (EPA) reports that climate change has intensified wildfire frequency, lengthened fire seasons, and increased the total area burned.
California Governor Gavin Newsom has acknowledged that wildfires are no longer seasonal but a year-round reality for the state.
A 2024 report from Insure Our Future found that one-third of all weather-related insurance losses worldwide over the past 20 years were linked to climate change.
Can Insurers Cover the Losses?
Despite the overwhelming cost of damages, experts say insurance companies should be able to pay out claims.
According to Standard & Poor’s, most insurers entered 2025 with strong financial reserves after two profitable years. JPMorgan analysts predict that the majority of losses from the wildfires will be concentrated in homeowners’ insurance rather than commercial or auto policies.
However, the Palisades Fire disproportionately impacted high-value properties, which could push claims higher than initially estimated.
What’s Next for California’s Insurance Market?
The California Department of Insurance has proposed reforms allowing insurers to use forward-looking catastrophe models and account for reinsurance costs, but industry experts say more action is needed.
To keep California insurable, experts suggest statewide wildfire mitigation efforts, such as:
Updating building codes to improve fire resistance
Encouraging underground transmission lines to prevent fire-starting sparks
Rethinking land-use planning in high-risk zones
For now, homeowners remain caught in the middle—facing the immediate devastation of wildfires and an uncertain future when it comes to rebuilding their lives.