The news: Multiple wildfires have ravaged the Los Angeles area, destroying thousands of homes, schools, and businesses—forcing around 200,000 locals to evacuate and killing at least 27 people, per NBC News.
The estimates: Wildfires in Los Angeles will cost the insurance industry up to $40 billion, double the initial projections, with optimistic scenarios suggesting a minimum of $25 billion in insured losses, per Bloomberg and Keefe Bruyette & Woods analysts.
The fires not only engulfed a large and heavily populated geographical area—but the average property value of the damaged homes far exceeds the national average, per Insurance Business Magazine.
Ongoing risks: And while wildfires were historically isolated to summer months in Southern California, Moody’s says climate change has made them a year-round threat. That means this magnitude of disaster could happen more often and at virtually any time going forward unless major factors change.
What it means for P&C insurers: Last year, seven of the 12 largest US insurers limited the policies they’re willing to write in California—or ceased writing new policies altogether. Just as California’s insurance commissioner made changes that may have increased profits for P&C insurers, disaster struck.
And the FAIR Plan—a shared risk insurance pool designed as a temporary safety net for high-risk properties—has seen its portfolio expand dramatically, per Insurance News Net. From 2023 to 2024 alone, policies issued through the FAIR Plan grew by 40%, with nearly a quarter of its exposure concentrated in Los Angeles County.
This rapid growth has strained the plan’s financial resources, with reserves and reinsurance funds likely insufficient to cover projected losses. This may force private insurers that remain in the state to make up the shortfall, potentially triggering higher premiums for homeowners statewide.
Our take: P&C insurers that wish to remain in California must integrate advanced climate risk modeling and diversify their portfolios to mitigate exposure in high-risk regions. Collaborating with regulators to develop sustainable insurance strategies and investing in adaptive technologies will be critical to navigating the increasing frequency and cost of natural disasters.
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