Insured losses from the Palisades and Eaton fires in Los Angeles are estimated at $35 bn to $45 bn, according to CoreLogic’s catastrophe modeling.
California homeowners, responding to the state’s ongoing insurance crisis, have turned to limited dwelling fire policies instead of comprehensive homeowners insurance.
CoreLogic noted this trend in a recent webinar, warning that such policies leave families underinsured and struggling to recover.
- New estimates peg insured losses to property from the Palisades and Eaton fires in Los Angels together will fall between $28 bn and $35 bn, which includes losses to the California FAIR Plan.
- The estimates out from the Extreme Event Solutions group at Verisk is approaching some of the highest figures issued on insured losses so far, including a high of $40 bn put out last week from Keefe Bruyette & Woods analysts.
- Verisk estimates insured losses from the Palisades fire will range between $20 bn and $25 bn, and losses from the Eaton fire will range between $8 bn and $10 bn. Most of the losses are to residential risks, according to Insurance Journal.
- Moody’s RMS Event Response estimated insured losses from wildfires will range from $20 bn to $30 bn.
- At one point the L.A. area had five significant ongoing wildfires. Total losses from the fires are expected to be massive. AccuWeather revised its preliminary estimate of the total damage and economic loss from the fires to between $250 bn and $275 bn.
The fires are also expected to put a strain on the FAIR Plan. FAIR Plan doesn’t have enough surplus for this level of loss, Gerald Glombicki, senior director at Fitch Ratings.
The impacted areas from the Palisades fire include some of the highest property values in the nation, and many of the policyholders have considerable contents exposure, including jewelry, fine art and other luxury goods, according to Verisk.
Eaton Fire
- Fire Size: 14,021 acres, 91% contained
- Structures Threatened: 6,775
- Structures Damaged: 1,073
- Structures Destroyed: 9,418
* Does not include structures believed destroyed, but pending confirmation.
Palisades Fire
- Fire Size: 23,448 acres, 68% contained
- Structures Threatened: 12,417
- Structures Damaged: 890
- Structures Destroyed: 6,662
* Does not include structures believed destroyed, but pending confirmation.
Traditionally, dwelling fire policies were used for secondary, investment, or vacant homes, offering reduced premiums in exchange for limited coverage. Tom Larsen, CoreLogic’s senior director of insurance solutions, explained that these policies only meet minimum mortgage or hazard insurance requirements but are “inferior” compared to standard homeowners policies.
“The homeowner will receive less compensation because not everything is as well covered,” Larsen said, adding that this could reduce total insurance losses.
The Palisades, Eaton, and Auto fires have caused 24 fatalities and destroyed over 12,300 structures as of Jan. 17, according to CalFire. Containment stood at 31% for the Palisades Fire and 65% for the Eaton Fire.
Rising premiums in wildfire-prone areas have made dwelling fire policies more common. These policies provide minimal coverage, focusing solely on the home’s structure while excluding personal property, liability, and additional living expenses (ALE). Displaced families without ALE coverage must cover relocation and temporary housing costs themselves.
In contrast, standard homeowners insurance offers broader protections, including personal belongings and displacement costs. However, these policies are cost-prohibitive for many due to escalating premiums, compounded by insurers withdrawing or limiting coverage in high-risk zones.
CoreLogic reports that the Palisades Fire accounts for two-thirds of the total losses, with the Eaton Fire contributing the remainder.
Reconstruction costs are higher than in past disasters, driven by inflation, demand surges, and inefficiencies in rebuilding.
California FAIR Plan policies in Pacific Palisades’ 90272 ZIP code rose 85% year-over-year to 1,430, reflecting the region’s devastation. The California FAIR Plan, the state’s insurer of last resort, had $377 mn available last week to pay claims, according to the Department of Insurance.
The plan also has a reinsurance tower, but claims exceeding these resources could trigger a special assessment on private property insurers operating in the state.
Wildfires still roaring through Los Angeles could cause a restructuring of the insurance industry in California, according to Daniel Aldrich, co-director of Northeastern University’s Global Resilience Institute.
A firefighter in protective gear sprays water on a burning building engulfed in flames. Like Hurricane Katrina nearly 20 years ago, he anticipates insolvencies and more exits in the property insurance market.
California FAIR Plan’s heavy presence in stressed neighborhoods complicates the situation, because millions of dollars of insured value was concentrated in areas such as fire-ravaged Pacific Palisades, where it had $5.89 bn of exposure.
Statewide exposure at the California FAIR Plan, the state’s insurer of last resort, jumped 61.3% for the year ending September 2024 to $458 bn.
The number of dwelling policies rose 123% over the prior four years to 248,902, FAIR reported. Last year, California FAIR Plan President Victoria Roach said the plan had $336 bn of property exposure on its books, backed up by just $200 mn of capital and $700 mn of cash on hand.