Can the Los Angeles fires impact California's home insurance market?
Published Date: 01/09/2025
California Burning: How the Los Angeles Fires Could Reshape the State’s Home Insurance Market
Wildfire season has once again ignited fear across California — and this time, the flames are threatening not just homes, but the very structure of the state’s insurance system. As fires rage through the Los Angeles area, many Californians are asking a familiar question: Will this disaster make home insurance even harder to find or afford?
In a state already facing an unprecedented insurance crisis, the answer is complex — and it reaches far beyond the burn zones. Insurance expert Karl Susman, host of Insurance Hour, joined ABC10 to unpack the implications of the latest fires and what homeowners can expect as California’s fragile insurance market is tested once again.
1. A State on Fire — and on Edge
One of the most gripping moments in the coverage came from Altadena, where an ABC News crew met Lynn Levin-Guzman, an emergency room nurse spraying down her parents’ home as flames from the Eaton Fire consumed neighboring houses.
“I know I’m not supposed to be here,” she said, “but this is my parents’ home.”
Her parents, both in their 90s, had lived there for decades. Their long-time insurer had recently canceled their fire coverage — a painful example of the growing number of California homeowners left unprotected.
This single story represents tens of thousands of similar situations across the state. Once easily insured communities have become high-risk zones, where carriers either won’t write policies or demand premiums that rival mortgage payments.
2. The Perfect Storm Behind California’s Insurance Crisis
California’s home insurance market didn’t collapse overnight. Over the past decade, several key forces have converged:
- Intensifying Wildfires: Record-setting fires in 2017, 2018, and 2020 led to tens of billions in insured losses.
- High Rebuilding Costs: Construction inflation and material shortages have driven up claim payouts.
- Outdated Regulations: Proposition 103 — a 1988 consumer protection law — requires state approval for rate increases and limits how insurers can model wildfire risk.
- Carrier Retreat: Major insurers like State Farm, Allstate, and Farmers have paused or restricted new business in many ZIP codes.
By 2024, more than 30% of California homeowners were either non-renewed or forced onto the California FAIR Plan, the state’s insurer of last resort.
3. Karl Susman: “This Is What the Industry Has Been Afraid Of”
As flames spread across the hills of Los Angeles County, Karl Susman didn’t mince words about the broader impact:
“This is exactly what the industry has been afraid of. Each new fire adds another layer of financial strain on carriers already operating on thin margins.”
Susman — himself evacuated during a previous wildfire — emphasized that this is the test moment for California’s new “Sustainable Insurance Strategy,” rolled out by the Department of Insurance (CDI) at the end of 2024.
The reform package is designed to modernize pricing and restore confidence among carriers. It allows insurers to use catastrophe modeling — advanced analytics that forecast wildfire losses based on topography, vegetation, and weather — while still requiring them to write policies in high-risk areas.
“The idea,” said Susman, “is to let insurers accurately price risk, so they can afford to stay. Hopefully now, with these new tools, they’ll be able to pay these bills, settle claims, and move forward sustainably.”
4. The New Regulatory Balancing Act
California’s new regulations are an attempt to strike a delicate balance between consumer protection and insurer solvency.
Before these reforms, insurers could only use historical data — not forward-looking models — to justify rates. But in a world of accelerating climate risk, past data has become unreliable.
Now, with the Sustainable Insurance Strategy, carriers can:
- Use catastrophe modeling to estimate wildfire losses.
- Account for reinsurance costs, which have skyrocketed due to global disaster frequency.
- Offer mitigation-based discounts to homeowners who harden their properties.
In exchange, insurers must commit to writing more business statewide, not just in low-risk coastal regions.
“The new system lets insurers operate like it’s 2025, not 1985,” Susman noted. “But it also holds them accountable to serve Californians fairly.”
5. Consumers’ Perspective: Hope, but Hesitation
Consumer advocacy group United Policyholders — represented by Executive Director Amy Bach — echoed cautious optimism.
“We’re hoping the marketplace continues to improve in 2025, even in the wake of this large disaster,” she said. “If insurers that stayed in California built sustainable rates, they’ll be able to pay claims and remain in business.”
It’s a hopeful view — but one dependent on insurers’ ability to absorb current losses without triggering another wave of policy cancellations.
Wildfires are more than a natural threat; they’ve become an economic pressure test. Each major blaze determines whether California’s restructured insurance system can withstand the financial shock or crumble back into scarcity.
6. The Reinsurance Ripple Effect
Behind every homeowner’s policy stands a web of reinsurance — the “insurance for insurers” that protects carriers from catastrophic loss.
In recent years, reinsurance premiums have tripled, particularly for wildfire-exposed regions. If reinsurers perceive California as unmanageable risk, they demand higher costs or withdraw entirely.
This cost ultimately trickles down to consumers, showing up as rate increases or reduced coverage availability.
Susman explained that California’s reforms now allow insurers to factor reinsurance costs into rate filings, something previously restricted. This change could prevent sudden financial shortfalls that drive insurers out of the state.
7. The Human Side of Policy Cancellations
While regulators and executives discuss data models and rate justifications, the human stories reveal the real impact.
For Lynn Levin-Guzman’s family, losing fire coverage just months before the Eaton Fire was devastating. “We’re going through this, and it just happened,” she told reporters. “And we have no fire insurance.”
Her story is heartbreakingly common. Elderly homeowners, many living on fixed incomes, are often the most affected. They’ve paid premiums faithfully for decades, only to see their policies non-renewed due to changes in underwriting risk zones.
“For many, the FAIR Plan is the only option left,” said Susman. “It’s essential coverage, but limited — it covers fire and smoke, but not theft, water damage, or liability.”
That means most FAIR Plan policyholders must also buy a separate “Difference in Conditions” (DIC) policy to fill the gaps — a costly combination that can double the price of standard coverage.
8. Could the Los Angeles Fires Derail the Recovery?
So, will this latest disaster derail California’s fragile recovery?
Experts say it depends on how insurers respond in the months ahead. If carriers fulfill claims swiftly and maintain confidence in their risk models, the system could hold. But if losses exceed projections, it could trigger another contraction in availability — especially in foothill and canyon communities.
“It’s too early to speculate on the full impact,” said a spokesperson for the American Property Casualty Insurance Association (APCIA). “We’re monitoring the situation closely to see how this will affect the state’s insurance marketplace.”
The key test will come during 2025 rate filings. Insurers will likely cite the LA fires in their actuarial models, potentially leading to premium increases in both high- and moderate-risk areas.
9. What Homeowners Can Do Now
Even as the market stabilizes, homeowners can take steps to reduce both their fire risk and their insurance burden:
- Harden your home: Install ember-resistant vents, Class-A roofing, and maintain defensible space.
- Bundle policies: Multi-policy discounts with the same carrier can offset premium hikes.
- Document property: Keep updated inventories and videos of possessions for faster claims.
- Work with independent agents: They can access surplus and specialty markets beyond the major carriers.
- Review coverage annually: Ensure dwelling limits and personal property coverage reflect today’s rebuilding costs.
10. A State Learning to Adapt
The Los Angeles fires serve as a painful reminder of California’s new normal — but they also highlight progress. Unlike in previous years, the state now has a roadmap toward stabilizing its insurance market.
If the system withstands this disaster, it could mark a turning point — showing that California can balance risk, regulation, and resilience.
As Susman concluded: “This is a test. If insurers can pay their claims and move forward under the new rules, we’ll finally have a sustainable path ahead — one where homeowners can count on protection, even in high-risk areas.”
Final Thoughts: Rebuilding Trust Alongside Homes
For homeowners like Lynn’s parents, the crisis is deeply personal. It’s not just about structures lost — it’s about trust lost in a system meant to protect them.
California’s insurance future now hinges on whether that trust can be rebuilt — one claim, one policy, one reform at a time.
If the Sustainable Insurance Strategy delivers as promised, 2025 may finally bring something Californians haven’t felt in years: hope that their home insurance will be there when they need it most.
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