More than 13,000 homes are at risk and losses could reach $10 billion from the Los Angeles wildfires, according to preliminary estimates from JPMorgan. The financial disaster threatens to upend the insurance market, which is already under severe financial strain.
The fires burning in the Palisades affect not only one of the city's wealthiest neighborhoods, where the average home price is about $3.5 million, but also one of the most vulnerable to wildfires. are. The hillside homes face the ocean, capturing spectacular views of the Pacific Ocean as well as the dangerous Santa Ana winds. When one house burns down, the next one also catches fire.
“The spread of the fires is out of control and $30 billion could be lost overnight,” said Michael Walla, director of the climate and energy policy program at the Stanford Woods Institute for the Environment. The fires come at a particularly vulnerable time for California, as the state faces a devastating homeowners insurance crisis. Late last year, the state insurance commissioner introduced new policies to stabilize the insurance industry, but those changes may not have come quickly enough to protect insurers and the state from financial crisis.
Changes to the rules governing insurance will allow companies to factor catastrophic risks into insurance policies and pass more costs on to homeowners. These changes come after most of the state's major insurance companies significantly reduced coverage following back-to-back wildfires in 2017 and 2018. Losses from the Camp and Tubbs Fire in Northern California and the Woolsey Fire in Southern California totaled 30 million yen. Approximately 23 billion dollars. In 2017 and 2018, the state's insurance companies collectively paid more than twice as much in claims and costs as they charged, according to the Insurance Information Institute.
In response to state policy changes, Allstate announced last year that it would stop accepting new policies in 2022 before considering returning to the California market. Companies are aggressively raising rates, as State Farm, the state's largest home insurance company, has requested significant rate hikes. According to Insure.com, the average homeowner's insurance premium in Los Angeles is $1,583 per year, which is higher than the rest of California but lower than the national average. But the average premium in Pacific Palisades was $7,520 a year, according to a San Francisco Chronicle analysis.
Many homeowners are unable to obtain or maintain insurance. Last summer, 70 percent of State Farm's customers in the Pacific Palisades, or about 1,600 homeowners, lost coverage when insurance companies discontinued policies in and around the Santa Monica Mountains. An analysis of state data by the San Francisco Chronicle found that more than 100,000 Californians lost coverage from 2019 to 2024. Actor James Woods, who had to evacuate his Pacific Palisades home, posted on social media site X at 1:14 a.m. On Wednesday, a major insurance company announced that it “canceled all insurance coverage in the neighborhood approximately four months ago.”
Homeowners have largely replaced their fire coverage with the state's insurance pool of last resort, called the California Fair Plan. The plan provides coverage for damages of up to $3 million for residential properties and up to $20 million for commercial properties. From September 2020 to September 2024, the number of residential FAIR policies increased by 123% to 452,000 policies. (Homeowners with more expensive properties often receive additional fire coverage from high-end insurance companies with high-value surplus policies.)
State rules require that if the FAIR plan needs additional funds to cover all claims (the plan's exposure in the Pacific Palisades alone is $5.9 billion), it must seek operations in the state to make up the shortfall. It mandates that private insurance companies can be relied upon to provide insurance.
With insurance companies already nervous and reluctant to do business in California, the loss could be the first real test of the state's emergency backup system. “If you have a loss event like we had in 2018 or 2019,” Wala said. “With insurance, we could be in a different world.”
