On Los Angeles Fires, Insurance and More
As of January 11, 2025, the Los Angeles wildfires have burned over 38,000 acres (an area larger than Miami), resulted in at least 10 fatalities, forced approximately 200,000 residents to evacuate under mandatory orders, and destroyed over 12,000 structures.
Palisades Fire: 22,000 acres burned; 11% contained;
Eaton Fire: 15,000 acres burned; 3% contained;
Hurst Fire: 800 acres burned; 76% contained;
Kenneth Fire: 1000 acres burned; 76% contained.
The following map presents the location and size of the Los Angeles fires.
Source: CALFire
JP Morgan estimates that the economic losses from the wildfires are "nearly $50 billion," and notes that "insured losses from this week’s fires could exceed $20 billion, potentially making them the costliest wildfires in U.S. history.'
AccuWeather Chief Meteorologist Jonathan Porter said, "This wildfire disaster is going to be yet another major challenge for the insurance industry ... families and businesses need to be able to purchase insurance at a reasonable rate, but insurance companies cannot continue absorbing huge loss after huge loss."
In recent years, major insurers like State Farm and Allstate have stopped issuing new homeowners' policies in California, citing increasing wildfire risks and restrictive regulations on premium adjustments. This exodus has significantly increased reliance on the California FAIR Plan, the state's insurer of last resort, whose exposure surged by 61.3% to $458 billion as of September 2024. The ongoing Los Angeles wildfires are expected to increase the stress on the FAIR Plan's limited resources, raising concerns about its ability to manage the growing volume of claims.
In testimony before the California State Assembly in March 2024, FAIR President Victoria Roach underscored the insurer’s precarious financial position. She stated, “As these numbers continue to climb, our financial stability becomes increasingly uncertain. We are just one major event away from a significant financial assessment. There is no other way to put it—we simply do not have the necessary funds on hand, and our exposure to risk is substantial.”
OUR TAKE
The Los Angeles wildfires will cause widespread economic losses, disrupt businesses, strain public budgets, destabilize the insurance market, degrade air quality, harm ecosystems, and increase public health risks and mental health challenges.
Solutions to California's wildfire insurance crisis include allowing risk-based pricing, strengthening the FAIR plan, incentivizing private insurers, improving risk assessment, promoting mitigation efforts, and revising zoning policies to create a more sustainable market.
Addressing the impacts of wildfires in California faces challenges including financial constraints, environmental and public health trade-offs, policy and regulatory barriers, implementation complexities, stakeholder coordination, and the need for long-term climate adaptation.