Overview
Six months after wind-driven wildfires killed 30 people and destroyed thousands of homes and businesses in and around Los Angeles, the scenes in Altadena and Pacific Palisades remain severe, with rows of burned-out homes and businesses, according to CNBC.
However, small signs of recovery appear as property owners clear lots, workers repair damaged homes, and, occasionally, homes are rebuilt when owners succeed in obtaining insurance and completing the permitting process.
The Los Angeles wildfires are expected to be a major catastrophic event for the insurance industry. However, analysts indicate that the insurance and reinsurance sector remains well-capitalized to manage losses, though some insurers may face greater challenges than others.
The longer-term impact on California’s insurance market from the Los Angeles County wildfires may be substantial, as insurers will further re-examine their appetites for wildfire risk as it has become highly unpredictable concerning location, intensity and seasonality.
Scott Wilk, an independent insurance agent and owner of the Santa Clarita branch of TWFG Insurance, described the insurance situation as “remarkably stable, considering everything that happened.”
The situation in insurance has actually been remarkably stable, considering everything that happened.
Scott Wilk, TWFG Insurance
Despite this, premiums have surged since the wildfires. Insurify projects a 21% increase in California premiums this year, even in areas far from Los Angeles, contrary to prior expectations of only modest rises in the state.
Chase Gardner, data insights manager at Insurify, explained that events like the California wildfires significantly raise projected premium increases. He noted that when insurance companies pay out more than they collect, they respond by raising prices.
Americans are moving to places with a high risk of climate disasters
Triple-I noted that Americans are moving to places with a high risk of climate disasters, such as the Southeast and Southwest, despite extreme weather events increasing in frequency and intensity in recent years. Losses related to natural disasters have increased tenfold from the 1980s to the 2020s (in 2024 dollars).
Disaster losses along coastal areas are likely to escalate in the coming years, in part because of significant increases in building and development.
Another unfortunate factor proliferating the rising costs of insurance is legal system abuse, which basically entails billboard attorneys swaying Americans toward litigation as a first step, rather than one of last resort
“This unfortunate phenomenon is a problem that needs more attention and fixing. For example, one element, which involves third parties funding litigation for profit has virtually zero transparency.
Third-party litigation insurance funding has become a multibillion-dollar global asset class of dark money, in which the likes of foreign governments can even invest and profit from the U.S. legal system. Beyond being a potential national security threat, these sovereign funds usually do not pay taxes on these investments,” Sean Kevelighan added.
Insurance Loss Estimates for Los Angeles Wildfires
- CoreLogic. Insured losses from the Palisades and Eaton fires are estimated to range between $35 bn and $45 bn.
- KBW. Updated insured loss scenario estimate to a maximum of $40 bn.
- BMS Group. Insured losses are likely to exceed $25 bn, though specific estimates remain preliminary.
- Morningstar DBRS. Analysts expect losses to range from $20 bn to over $40 bn, depending on the final damage assessment.
- J.P. Morgan. Insured losses could surpass $20 bn as of early 2025.
- KBRA. Industry losses from the wildfires are estimated at $20 bn to $25 bn, with total economic losses reaching up to $150 bn.
- Moody’s. Projects insured losses to reach billions of dollars due to high property values in impacted areas.
- Berenberg. Anticipates insurance industry losses of more than $20 bn, with potential estimates exceeding $40 bn.
- AM Best. Insurance industry loss estimates range from $10 bn to $20 bn and could increase if the fires continue to spread.
- Fitch Ratings. Insured losses are estimated between $10 bn and $30 bn, with economic losses projected at $150 bn to $275 bn
Wildfire losses in California have historically been viewed as secondary risks compared to hurricanes and earthquakes. The 2017 Tubbs Fire and 2018 Camp Fire resulted in insured losses of $11.1 bn and $12.5 bn, respectively, according to Aon (see Global Natural Catastrophe Overview).
Home insurance premium increases in all 50 states
In fact, home insurance premium increases in all 50 states this year, averaging around 8%. California’s increase is not the largest; Louisiana is projected to lead with a 28% rise.
Double-digit increases are also expected in non-coastal states such as Iowa and Minnesota.
The wildfires in the Los Angeles area have caused unprecedented property damage, with insured losses surpassing $50 bn, leading to a negative but manageable impact on insurers’ credit profiles. As for the total loss economic loss estimated to between $135 bn and $150 bn.
Benjamin Keys, a professor of real estate and finance at the Wharton School of the University of Pennsylvania, stated that rising costs are not confined to coastal Florida or wildfire-prone California.
Vermont faces higher costs from recent floods, Colorado sees sharp increases due to wildfires and more hailstorms, and several Midwest states also experience higher premiums.
It’s not just a story for areas like coastal Florida or the wildfire prone parts of California. It’s really a much more national story.
Benjamin Keys, University of Pennsylvania’s Wharton School
“We’re seeing states like Vermont with rising costs related to recent floods. We’re seeing states like Colorado, which historically was a middle of the pack state when it came to the cost of insurance, seeing rapidly increasing insurance costs due to recent wildfires, and increased hail storms in many parts of the Midwest,” said Benjamin Keys.
The official start of the Atlantic hurricane season kicked off June 1, and is forecast to be a busy one, which is why homeowners need to prepare. Yet many lack even the most basic preventative measures, unaware of the risks they face, according to a survey by the Insurance Information Institute.
- 88% of homeowners purchased homeowners’ insurance. 32% of homeowners reported that they have been impacted by weather in the last 5 years. 25% do not expect to ever be impacted by weather risks
- 60% of homeowners state that they have not taken any steps to better protect their homes, while 40% have taken some steps — yet maintenance and improvements can help mitigate damage and reduce cost.
- 68% of homeowners report not being impacted by weather events in the last five years. As a result, 36% believe their residence will never be impacted by climate risk.
- 48% of homeowners say they have an evacuation plan — Being prepared for unforeseen weather events, by creating an evacuation plan can save lives.
- 20% of those surveyed have annual household incomes of less than $40,000, yet this population represents 48% of non-buyers of homeowner’s insurance. At lower income levels, homeowners’ insurance, it was found, may be perceived as a discretionary purchase.
These findings show most people do not realize the risk and power associated with weather risks such as flooding.
Insurance premiums are regulated individually by each state
Insurance premiums are regulated individually by each state, so companies theoretically cannot use a disaster in one state to justify increases in another.
However, experts observe a ripple effect as insurers adjust risk exposure by pursuing premium hikes in some states and reducing policies in others.
Gardner noted that national insurers consider their entire business portfolio, and losses in one state can influence decisions about acquiring customers and setting rates nationwide.
Premiums differ widely by state, with Florida projected to have the highest average at $15,460, although increases there have moderated after reforms. Vermont holds the lowest projected average at $1,248 despite its recent rise.
Even with a 21% increase, California’s projected average premium of $2,930 remains below Insurify’s national median projection of $3,520.
Disparity in insurance premiums among states
Companies evaluating where to locate or expand often weigh the cost of living for employees, and the disparity in insurance premiums among states influences competitiveness.
Chase Gardner of Insurify explained that rising home insurance premiums increasingly impact monthly housing costs, eroding the perception of homeownership as a stable, predictable long-term investment.
This is particularly evident in states such as Florida, California, and Texas. Experts anticipate continued premium increases as storms and other natural disasters intensify, while home values and replacement costs keep rising.
Scott Wilk noted that although California’s worst crisis may have passed, further price shocks are likely. He explained that rate changes take considerable time to process, sometimes between 12 and 36 months.
There’s a very long process for a rate change to get through. Sometimes it can take between 12 to 36 months
State Farm, California’s largest insurer, dropped thousands of policyholders before the January fires and secured state approval in May for a 17% emergency rate increase. The company initially requested a 30% hike and has already petitioned regulators for the remaining 13%.
Wilk pointed out that affordable options remain available in California, particularly from smaller insurers or from “non-admitted” companies that operate outside the state’s regulatory framework.
He added that many clients are simply relieved to secure coverage. Earlier in his career, Wilk recalled, clients would complain if rates rose even $5 per month. Now, most feel fortunate when their policies renew and remain active.
FAQ
Premiums are rising because insurance companies are paying out more than they collect, largely due to severe wildfires, storms, floods, and higher home replacement costs. Insurers respond to these losses by raising prices to cover increased risk.
No. Although California, Florida, and Texas see significant increases, other states such as Iowa, Minnesota, Vermont, and Colorado also experience sharp rises due to floods, hailstorms, and other weather-related events.
On average, home insurance premiums in all 50 states are projected to increase by about 8% this year. California premiums are projected to rise by 21%, while Louisiana may see the highest increase at 28%.
Premiums differ due to local risks, state regulations, past losses, and the competitive landscape. For example, Florida has the highest projected average premium at $15,460, while Vermont has the lowest at $1,248 despite recent floods.
In theory, no — each state regulates its own premiums and ties them to in-state risk. In practice, however, insurers adjust their overall portfolios and may seek increases in some states while limiting exposure in others.
Yes. Some smaller carriers and “non-admitted” companies not regulated by the state still offer policies, often at relatively lower rates compared to larger, heavily regulated insurers.
Rate changes can take between 12 and 36 months to process through state regulatory systems. This delay means premium shocks may continue for several years after a major disaster.
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AUTHOR: Scott Cohn – Special Correspondent, CNBC
