January 9, 2025
4 min read
Los Angeles Fires Could Push California’s Insurance System to the Brink
Damages from the recent fires in the Los Angeles area could overwhelm California’s already stressed insurer of last resort
A cyclist pedals along Pacific Coast Highway past burning homes in Malibu, CA on Wednesday, January 8, 2025. High winds escalated the spread of several blazes across Southern California.
David Crane/MediaNews Group/Los Angeles Daily News via Getty Images
CLIMATEWIRE | LOS ANGELES — Wednesday’s firestorm in a wealthy area of Los Angeles could be the final straw that breaks California’s insurance market.
The state’s insurance market has been teetering on the edge of insolvency for years thanks to catastrophic wildfires that have driven many insurers to stop writing new policies and drop existing ones. Wednesday’s wind-driven wildfires in a part of Los Angeles packed with multimillion-dollar homes could accelerate its collapse.
“It’s obviously going to be bad,” said Rep. Brad Sherman, the Democrat who represents the neighborhood between Malibu and Santa Monica where the Palisades Fire — one of six burning uncontained across the region — had destroyed more than 1,000 buildings as of Wednesday afternoon. “We’ve already seen big increases. And we’ve seen these increases not only in houses that are close to the brush, but in areas where you’re surrounded by other homes.”
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President-elect Donald Trump called out the issue Wednesday as he bashed Democrats for the deadly, wind-fueled conflagrations that forced tens of thousands of people to flee their homes. “The fires in Los Angeles may go down, in dollar amount, as the worst in the History of our Country,” he wrote on Truth Social. “In many circles, they’re doubting whether insurance companies will even have enough money to pay for this catastrophe.”
The state’s insurer of last resort, known as the FAIR Plan, predicted that it would be able to pay out. “We are aware of misinformation being posted online regarding the FAIR Plan’s ability to pay claims,” spokesperson Hilary McLean said in a statement on behalf of the FAIR Plan. “It is too early to provide loss estimates as claims are just beginning to be submitted and processed,” McLean wrote, noting the plan was prepared for this kind of a disaster and has payment mechanisms including reinsurance, to cover claims.
But California faces a double-barreled threat: Private insurers could continue to drop policies and decline to write new ones, as they’ve been increasingly doing since a series of severe fires beginning in 2017 with the Tubbs Fire in Northern California. And the FAIR plan, which has been absorbing the shrinking private market, could run out of money to pay its claims.
That wouldn’t mean going bankrupt, as McLean noted. Instead, it would draw from primary insurers to recoup its costs under state law, raising rates across all private policies and sending rates skyrocketing across the state.
“This is sort of what everybody’s been preparing for,” said Karl Susman, an insurance broker in West Los Angeles who’s filing dozens of claims on behalf of clients. “This is why rates are going up. This is why carriers are freaking out.”
State Farm dropped nearly 70 percent of its policies in the Pacific Palisades neighborhood last year, according to a state filing — more than any other ZIP code in the state — in a sign it saw the neighborhood as risky. That forced more people onto the FAIR Plan, which was originally created in the 1960s to insure riot-scarred Los Angeles neighborhoods but has since found more demand in rural and suburban fire-prone regions.
In Pacific Palisades alone, the FAIR plan insures nearly $6 billion worth of property, according to September figures — more than all but four communities in California. Across the state, the total value of FAIR-insured properties was $458 billion, triple the total insured value in 2020, according to FAIR Plan data.
The damages, which AccuWeather estimated Wednesday at $52 billion-$57 billion, could continue to rise as hurricane-force winds forecast through Wednesday and Thursday put thousands more homes at risk.
“Should a large number of additional structures be burned in the coming days, it may become the worst wildfire in modern California history,” AccuWeather chief meteorologist Jonathan Porter said in a statement.
State officials who have been trying to stanch insurers’ exodus said they were prepared to limit the impact, including by passing a temporary year-long moratorium on nonrenewals in areas recently burned.
“Insurance companies are pledging their commitment to California, and we will hold them accountable for the promises they have made,” Insurance Commissioner Ricardo Lara said in a statement.
Susman called the fires a “proving ground” for rules Lara finalized just weeks ago to entice property insurers back to the market and force them to write more in fire-prone areas.
The rules gave insurance companies permission to pass along the costs of reinsurance to customers and use forward-looking so-called “catastrophic models” that take into account the likelihood of the type of climate-fueled fires raging in Los Angeles to raise rates, in exchange for meeting a certain quota of policies in disaster-prone areas. Insurers like Allstate have promised to return to the market following the changes.
“If they hadn’t gone into effect in December, I could see the carriers literally saying, ‘OK, we’re leaving. We’re done,’” Susman said about the rules. “Now, because they can properly underwrite, because they can offer certain types of discounts, and they can be more granular in how they’re coming up with rates and underwriting, they can find a path back into the market.”
But that might be optimistic. Michael Wara, director of Stanford’s Climate and Energy Policy program and consultant to the state’s Public Utilities Commission on wildfire issues, said the new rules may not be enough to keep insurers around if the insurance payouts get too high.
“We may have crossed a threshold now where we need larger measures in order to essentially create a solvent insurance system,” he said. “And those measures are going to be politically difficult. They may create substantial risk for the balance sheet of the state of California.”
Reprinted from E&E News with permission from POLITICO, LLC. Copyright 2025. E&E News provides essential news for energy and environment professionals.