LA Wildfires Exacerbate California’s Insurance Crisis

The LA wildfires have led to evacuation orders covering 180,000 people and left at least ten dead, and they have burned down hundreds of buildings, among them some of the most high-value properties in the city. 

California was already contending with a home insurance crisis due to unpredictable weather events, and according to data from the world’s largest re-insurer, the issue of uninsurable locations is not limited to the Golden State.

Celebrity Blowback

One of the neighborhoods devastated by the LA wildfires is the Pacific Palisades area, where celebrities including Paris Hilton and Billy Crystal have had homes burn down and the average house costs $3.3 million, according to Redfin. It’s not only wealthy homeowners whose properties are catching fire, but the loss of that real estate will have an outsized impact on the California home insurance industry. Analysts at JPMorgan believe the insurance losses from the LA wildfires could total as much as $20 billion, the Financial Times reported.

Pacific Palisades itself was well on its way to becoming uninsurable even before the wildfires started to rage. Per Business Insider, California’s largest home insurer, State Farm, dropped 69% of policies in the upscale neighborhood last March. Now, like a wildfire, that uninsurability is likely to spread:

• Darren Nix, CEO of Steadily Insurance Company, told Business Insider that premiums on homes far, far away from wildfire risk zones are likely to experience 15% to 20% annual increases as insurers look to hedge against the losses they incur elsewhere in the state.
• Another knock-on effect for Californians is that mortgages will be harder to come by as affordable home insurance becomes more and more of a pipe dream. 

Unisolated Incident: California isn’t alone, with Florida also facing a particularly acute home insurance crisis due to increasingly frequent extreme weather events. Last year, US home insurers suffered the worst underwriting loss in a century, something that appears to be a global trend. The world’s largest reinsurer, Munich Re, said in a report Thursday that natural disasters in 2024 cost $140 billion in insured losses, making it the third-most expensive year for the insurance industry since 1980.