How SO CAL Wildfires could impact insurance coverage in the future
Published Date: 01/09/2025
How Southern California Wildfires Could Impact Insurance Coverage in the Future
Southern California’s hills are burning again — and so is the conversation about the future of home insurance in the state. As flames consume multimillion-dollar properties and entire communities watch the skyline glow red, the financial fallout is extending far beyond the burn zones.
In the wake of the latest wildfires, experts are warning that California’s insurance market could once again be thrown into turmoil, reigniting the same fears that have haunted homeowners for years: policy cancellations, skyrocketing premiums, and the shrinking availability of coverage.
Insurance professionals like Karl Susman, a Los Angeles–based expert and host of Insurance Hour, have been warning about this exact scenario for months. Alongside other industry veterans like Michael Kiefer, the message is consistent — every catastrophic wildfire pushes California’s already strained insurance ecosystem closer to the edge.
1. A Firestorm With Financial Consequences
The devastation across Los Angeles County has left millions of dollars in property damage, much of it insured — but not all. Some homeowners had already lost coverage when their policies were non-renewed earlier this year, while others discovered too late that their protection was incomplete.
As ABC 10’s Jane Kim reported, this latest blaze could become another turning point for the insurance industry.
“When an insurance company experiences losses above what they’ve predicted for the year, they’re going to reassess what their rates should be in those wildfire zones,” Kiefer explained. “That could in turn raise the rates. We don’t know yet — but the potential is there.”
This process — known as rate reassessment — is standard after any catastrophe. Carriers re-evaluate their actuarial models, adjust their expected loss ratios, and determine whether existing rates still make financial sense. The problem is, after years of increasingly destructive fires, many carriers are already at their breaking point.
2. The Perfect Storm: Rising Claims, Falling Capacity
When insurers face losses that exceed projections, two things typically happen:
- Premiums increase to compensate for the new perceived level of risk.
- Underwriting tightens, leading to non-renewals in the hardest-hit areas.
That combination — higher costs and fewer options — has already defined California’s insurance crisis for the past five years. The wildfires of 2017 and 2018 set off a chain reaction that has yet to stabilize.
By 2024, the California FAIR Plan, the state’s insurer of last resort, had seen policy counts surge by more than 120% since 2020. The plan’s exposure — the total amount it could be forced to pay out in claims — now exceeds $6 billion in just one region, the Pacific Palisades, where much of this week’s destruction occurred.
As Karl Susman put it bluntly:
“This is what the industry has been concerned about — catastrophic losses hitting areas that insurers already identified as high-risk.”
It’s not just about individual fires. Each major incident compounds the uncertainty that insurers use to justify their pricing. And that uncertainty ripples outward — from Malibu to Marin, from the foothills of Altadena to the forests of Redding.
3. The FAIR Plan: A Lifeline Under Pressure
The California FAIR Plan was designed as a safety net — not a long-term solution. Established in 1968, it exists to provide basic fire coverage to homeowners who can’t find insurance elsewhere. But its growth in recent years has been staggering.
As private insurers withdrew from fire-prone ZIP codes, FAIR Plan enrollment exploded. The plan’s exposure to potential loss is now so large that even a single major event could stress its financial stability.
In the Pacific Palisades alone, the FAIR Plan’s potential claims exposure — $6 billion — rivals the annual budgets of some small insurers. And because the FAIR Plan is funded by mandatory participation from all property insurers in the state, any major losses are effectively shared across the entire market.
That means even insurers who’ve scaled back wildfire exposure could still face indirect financial impacts.
“The FAIR Plan is a backstop,” Susman explained, “but it’s not limitless. The more people rely on it, the greater the strain on the entire system.”
4. California’s Response: Forcing Coverage Expansion
Recognizing the growing imbalance, Insurance Commissioner Ricardo Lara has taken unprecedented action. Under a new plan introduced in late 2024, insurance companies operating in California will be required to increase their coverage in wildfire-prone areas by 5% every two years.
The goal is to gradually shift risk back to the private market and reduce the FAIR Plan’s unsustainable load.
It’s an ambitious strategy — but not without risk. Forcing carriers to expand coverage could backfire if rate regulations don’t evolve fast enough to support that added exposure.
Currently, insurers still operate under Proposition 103, the 1988 law that restricts how companies can adjust rates and what data they can use to justify them. While Commissioner Lara’s Sustainable Insurance Strategy allows limited use of catastrophe models and reinsurance cost inclusion, it doesn’t fully modernize the pricing process.
“It’s a delicate balance,” said Susman. “You can’t force companies to write more business in dangerous areas unless they can price the risk accurately.”
5. The Reinsurance Domino Effect
Reinsurance — the “insurance for insurance companies” — remains one of the least understood yet most influential elements of the crisis. Global reinsurers, who help carriers absorb catastrophic losses, have significantly increased premiums for California wildfire exposure.
When those costs rise, primary insurers have little choice but to pass them on to consumers or reduce their risk footprint altogether.
“Every time there’s a large wildfire,” Susman said, “reinsurers around the world take notice. And when they start to pull back, that pressure hits every California homeowner, even those far from the burn zones.”
In other words, a fire in Los Angeles can raise premiums in San Diego, San Francisco, and Sacramento. The market is that interconnected.
6. The Human Cost: When Insurance Disappears
For homeowners, the financial implications are daunting. Thousands have already experienced non-renewals — letters arriving months before renewal dates informing them their policy won’t be extended.
Some find refuge in the FAIR Plan, but many discover it covers only fire and smoke damage — not theft, liability, or water damage. To fill those gaps, homeowners must purchase a Difference in Conditions (DIC) policy from a surplus lines carrier, often doubling their total premium.
That reality is pushing many Californians toward self-insurance, whether they intend it or not. And in the aftermath of a fire, that can mean financial ruin.
“We’re seeing families who thought they were covered find out they’re not,” said Kiefer. “That’s the real tragedy.”
7. A Market on the Brink — or the Cusp of Recovery?
Despite the grim headlines, there are signs that the system may slowly be finding its footing. California’s recent regulatory updates — particularly the inclusion of modern catastrophe modeling — have encouraged some carriers to cautiously re-enter select markets.
The Department of Insurance believes that by 2025, availability could improve, provided the reforms survive political and legal challenges.
Still, every major wildfire is a stress test. And as this latest disaster unfolds, the question remains whether the reforms can withstand real-world loss events.
“We’re in uncharted territory,” Susman said. “If the new system can handle this without another wave of withdrawals, then maybe — just maybe — we’ve turned a corner.”
8. What Homeowners Can Do Right Now
While California policymakers and insurers debate long-term fixes, homeowners can take immediate steps to protect themselves and their property:
- Check coverage limits: Ensure dwelling coverage reflects true rebuilding costs in today’s market.
- Harden your home: Create defensible space, install ember-resistant vents, and clear vegetation.
- Ask about discounts: Many insurers now offer wildfire mitigation credits.
- Bundle policies: Combining auto, home, and umbrella coverage can reduce costs.
- Work with an independent broker: Brokers like Susman and Kiefer can access multiple markets and help navigate FAIR Plan and DIC combinations.
- Keep documentation: Take photos, maintain a home inventory, and store copies of your policy digitally.
Preparation is no longer optional — it’s survival.
9. The Road Ahead: Learning to Live With Risk
Wildfires are not new to California, but their frequency and intensity have redefined what “normal” looks like. As Susman often reminds his listeners, the goal isn’t to eliminate risk — it’s to manage it intelligently.
The coming year will test whether California’s restructured system can truly provide stability. Insurers will analyze this latest event’s losses, regulators will reassess their models, and homeowners will once again look for reassurance that coverage will still be there when they need it.
“Every time the state burns, we learn something,” Susman said. “The question is whether we learn fast enough.”
Final Thoughts: Fire, Resilience, and Reform
The Southern California wildfires are more than a natural disaster — they’re a financial and regulatory wake-up call. They reveal both the fragility and adaptability of California’s insurance framework.
As policymakers push insurers to re-engage with wildfire zones and carriers navigate tighter profit margins, homeowners must stay informed, proactive, and vigilant. The system is evolving, but its success depends on all three sides — regulators, insurers, and consumers — working in tandem.
If there’s one lesson from this latest catastrophe, it’s this:
California’s fire problem isn’t going away — but with smarter policy, stronger homes, and fairer pricing, the insurance crisis doesn’t have to burn out of control.
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