How Insurance Companies Are Handling LA Fire Losses

Published Date: 01/24/2025

Inside California’s Wildfire Crisis: How Insurers Are Managing the LA Fire Losses

California’s latest wildfire catastrophe has once again tested the strength and responsiveness of the state’s insurance industry. With entire communities reduced to ash and thousands displaced, policyholders are now confronting a second wave of stress—navigating the complicated process of insurance recovery.

On California Insider, insurance expert Karl Susman, President of Susman Insurance Agency and host of Insurance Hour, shared a candid, behind-the-scenes look at how insurers are responding to the Los Angeles-area fire losses, why payouts vary dramatically, and what policyholders need to know to protect themselves in the months ahead.

His perspective reveals a nuanced truth: most insurers are paying claims, but the pace, structure, and amount of those payments depend on a complex web of contracts, regulations, and financial realities that few consumers fully understand.

1. The Scale of the Disaster: When a Regional Fire Becomes a Financial Earthquake

Wildfires in Southern California are no longer seasonal events—they’re annual catastrophes. This latest disaster, according to Susman, has destroyed or severely damaged hundreds of properties among his own agency’s clients alone.

“We’ve got over a hundred total-loss claims and hundreds more with smoke, heat, or ash damage,” Susman said.

The losses are staggering—not just in property value but in logistics. Insurance carriers are flying in adjusters from across the country, setting up mobile claims centers, and issuing digital payments within days for emergency living expenses.

But as Susman noted, speed varies widely between carriers. The reason? Not every insurer is equipped—or staffed—to handle such widespread damage simultaneously.

2. Why Some Insurers Pay Quickly and Others Don’t

Larger, national carriers like State Farm, Allstate, or Farmers have dedicated catastrophe response teams—specialized units trained for large-scale events. These teams arrive on the ground within days, assess losses, and process immediate assistance.

By contrast, the California FAIR Plan, which many residents in high-risk wildfire zones rely on, operates with a fraction of that capacity.

“They’re paying, but they’re slow,” Susman explained. “It’s not because they don’t want to pay—it’s because they don’t have enough people.”

The FAIR Plan often contracts third-party adjusters and temporary staff to process claims, creating unavoidable delays. Still, despite those operational limitations, it remains financially secure—backed by every admitted insurance company in California.

3. The FAIR Plan: California’s “Last-Resort” Insurance Safety Net

Many homeowners don’t realize that the California FAIR Plan is not a state-funded program. Instead, it’s a shared insurance pool supported by all companies licensed to write property insurance in the state.

Here’s how it works:

• The FAIR Plan maintains cash reserves and reinsurance coverage to pay claims.
• If losses exceed those reserves, it can issue bonds or assess participating insurers to replenish funds.
• Those insurers can then request permission from the California Department of Insurance (CDI) to recoup part of the cost through premium surcharges.

In short: homeowners will get paid—but patience is required. The FAIR Plan has the money, but not the manpower to process thousands of claims overnight.

4. What Happens After a Total Loss: Rebuild, Relocate, or Repurchase

For homeowners who lost everything, the first—and most difficult—decision is whether to rebuild on the same lot or start over somewhere else.

“If you have a replacement cost policy,” Susman said, “you can rebuild, buy elsewhere, or even build on a new property and transfer your mortgage.”

However, if you decide not to rebuild or replace, your insurer may only pay the actual cash value (ACV)—essentially the depreciated amount of your home. That can be hundreds of thousands less than the full replacement cost.

Why? Because insurance is designed to restore what was lost—not to hand out unrestricted cash. The concept, known as indemnification, ensures that payouts mirror your real financial loss.

Susman advised homeowners to document their intentions early and keep their insurer informed:

“If you plan to buy a home elsewhere, tell them that right away. It can make a big difference in how fast you’re paid.”

5. Mortgages, Banks, and the Extra Red Tape

Even after a home is destroyed, your mortgage lender remains part of the equation.

Because the lender has a financial stake in your property, they are listed as a payee on your insurance claim. That means claim checks are often made out to both you and your bank.

“It’s not a brick wall—it’s just another step,” Susman clarified. “The bank wants to make sure the home is rebuilt or the loan is satisfied.”

Typically, lenders will require proof that rebuilding or home replacement is underway before releasing funds. For families planning to move, this can add weeks or months of paperwork—but it ensures both borrower and lender are protected.

6. The Underinsurance Epidemic: Why Coverage Gaps Are Growing

Perhaps the most troubling issue emerging from this disaster is underinsurance.

Many Californians, desperate to keep premiums affordable, have reduced their coverage limits over the years—often without realizing that construction costs have skyrocketed.

“Rebuilding after a major event can cost four times more than normal,” Susman warned. “When it’s your house, that’s one thing. When it’s the whole city, it’s another.”

After wildfires, the combination of material shortages, labor scarcity, and inflation often pushes rebuilding costs far beyond policy limits. Even extended replacement cost coverage (typically 25–50% above base limits) may not be enough.

For those underinsured, FEMA grants or SBA disaster loans may offer partial relief, but they rarely cover full losses—and loans must be repaid.

7. Admitted vs. Non-Admitted Carriers: A Hidden Divide

The fires also highlight a critical but often misunderstood difference between admitted and non-admitted insurance companies.

• Admitted carriers are fully regulated by the California Department of Insurance. They must follow strict rate approval processes, contribute to insolvency funds like the California Insurance Guarantee Association (CIGA), and participate in FAIR Plan assessments.
• Non-admitted carriers, such as Lloyd’s of London, operate outside those constraints. They can charge market-based rates and adjust underwriting quickly, but their policies aren’t backed by CIGA if the company fails.

“It’s not about whether they’re admitted,” Susman explained. “It’s about whether they’re strong enough to pay when it matters.”

For homeowners in wildfire zones, non-admitted coverage may be the only option—but it comes at a premium and with less regulatory protection.

8. Reinsurance: The Global Shockwave Behind Local Premiums

Each major wildfire doesn’t just devastate California—it ripples through the global insurance market.

Insurance companies purchase reinsurance (insurance for insurers) to limit their exposure to catastrophic losses. When California experiences billion-dollar events, reinsurance companies worldwide pay out massive sums—and then raise rates on the next renewal cycle.

“When reinsurers write those checks, it affects pricing everywhere,” Susman said.

That means even policyholders far from the fire zone can feel the financial aftershocks through higher premiums in the years that follow.

9. The FAIR Plan Paradox: Expensive but Necessary

Many assume the FAIR Plan is a cheaper fallback option. The reality? It’s often more expensive—and offers less coverage.

A typical FAIR Plan policy only covers fire and smoke. To protect against water damage, theft, or liability, homeowners must purchase a Difference in Conditions (DIC) policy from another carrier. Together, those premiums can exceed $10,000–$15,000 per year—far higher than standard homeowners’ policies before the crisis.

“The FAIR Plan isn’t discount coverage,” Susman emphasized. “It’s discount protection for a premium price.”

Yet for many Californians, especially those in the foothills or rural regions, it remains the only way to keep a mortgage compliant and a roof insurable.

10. What Homeowners Can Do Now

Susman urged all California homeowners—not just those affected by the current fires—to take preventive action immediately:

1. Review your coverage annually. Ensure your dwelling limit reflects current construction costs, not your home’s market value.
2. Add extended replacement cost coverage. Aim for at least 50% above your base dwelling limit if available.
3. Include ordinance and law coverage. This pays for building code upgrades required during reconstruction.
4. Update your inventory. Photos, receipts, and digital backups are vital for proof of loss.
5. Work with your agent or broker proactively. Don’t wait for a renewal crisis—explore options early.

11. The Takeaway: Transparency, Communication, and Realism

California’s wildfire crisis has pushed the insurance industry to a breaking point. But amid the frustration, Susman’s message offered cautious optimism.

“Most insurance companies are paying,” he said. “They’re just overwhelmed. Stay patient, stay in contact, and document everything.”

As the state debates long-term reforms—balancing consumer protections with insurer solvency—the path forward will demand transparency, collaboration, and realistic expectations.

In a world where wildfires are no longer rare, insurance must evolve from reactive recovery to proactive resilience—and homeowners must be part of that evolution.