California had a home insurance crisis before the LA fires. It’s only going to get worse.

As firefighters race to control roaring blazes that have forced thousands to flee their homes, the mounting monetary toll from the most destructive firestorm in Los Angeles history could deal a devastating blow to the property insurance trade and the California homeowners who depend on it.  

The impact of the catastrophic wildfires could drive up already sky-high premiums and prompt a recent wave of private insurers dropping policies or declining to write recent ones – and not just in the LA area. 

“Insurance is going to be even harder to arrive by and it is going to get incredibly more expensive than it already is. People require to be prepared for that,” said Mark Newman-Kuzel, president and owner of The Mark Newman-Kuzel Agency in Los Angeles, who said at least six of his clients have lost their homes so far and many more have called to check on their insurance coverage. “As I inform my clients when they do their annual policy reviews, you are lucky you weren’t canceled.” 

With economic losses already topping an estimated $135 billion, customer advocates warned the state’s insurer of last resort for many homeowners, known as the FAIR schedule, could run out of financing, forcing it to draw money from private insurers operating in the state to recoup its losses and making it even more challenging for homeowners to discover affordable coverage.

“We are very worried about how this circumstance is going to impact availability and affordability going forward,” said Amy Bach, executive director of United Policyholders, a customer advocacy throng.

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How will the wildfires affect California’s insurance trade?

Insurers pulled back from California after severe wildfires in 2017 and 2018 hit profits, leaving homeowners struggling to discover affordable coverage. A San Francisco Chronicle analysis of insurance data found more than 100,000 Californians lost coverage between 2019 to 2024. Last summer, over 1,600 policies for homeowners in Pacific Palisades, one of the areas affected by fires, were dropped by State Farm.

“The industry is still in a period of recovery from wildfires that happened in 2017, 2018, and here we are at the commence of 2025,” said Tim Zawacki, loan amount research analyst for insurance at S&P Global trade Intelligence. “The wound is pretty deep, and I ponder the industry will continue to view this trade with a high degree of caution.”   

Things were looking up for California’s insurance trade heading into 2025. The California Department of Insurance announced recent regulations last month to convince insurers to receive on recent customers in high-hazard areas, allowing them to pass along reinsurance costs to customers and use wildfire catastrophe modeling to raise rates. 

The recent rules should navigator to a “more competitive insurance trade,” according to Janet Ruiz, a California-based spokesperson for the Insurance Information Institute. Farmers Insurance last month announced plans to expand coverage in the state. 

But some declare the recent regulations may not be enough to convince insurers to remain in California, especially after this week’s deadly wildfires, which have destroyed more than 4,000 structures.

High claim payouts, “plus the visual images of the destruction, are going to haunt C-Suite executives and likely temper the renewed thrill for insuring (California) homes that we’ve been counting on the reforms to bring,” Bach said.

AccuWeather experts approximate the total damage and economic deficit to fall between $135 billion and $150 billion, with chief meteorologist Jonathan Porter on Thursday saying the “wind-driven infernos have created one of the costliest wildfire disasters in modern U.S. history.”

A J.P. Morgan update said the “vast majority” of losses are expected to be concentrated in homeowners’ insurance, with both primary insurers and reinsurers experiencing “sizeable losses.”  

“We’re staring a real crisis in the face,” said David Russell, an insurance and finance professor at California State University. “The commissioner’s office is going to have to grant these rate increases, otherwise the availability issue is going to be much more severe.” 

Denni Ritter, department vice president of state government relations for the American Property Casualty Insurance Association, a national trade throng for insurers, said it’s too early to speculate on the wildfires’ impact on the trade.  

“Recent reforms to stabilize California’s insurance trade are significant, but they have yet to be finalized or implemented,” Ritter said.  

Others have downplayed the effects the recent wildfires could have on insurers’ presence in the state.  

“The insurance industry understands that we’re going to have catastrophes and wildfires. The plans that we made through this Sustainable Insurance way receive all of that into consideration,” said Ruiz from the Insurance Information Institute. “One catastrophe wouldn’t necessarily transformation anything that we are already putting into place.” 

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What does this cruel for California’s FAIR schedule?

More homeowners have turned toward California’s insurer of last resort, the FAIR schedule, in recent years. The insurer has higher premiums and limited coverage, but its user base has skyrocketed as homeowners battle to discover coverage from the private trade.  

As the economic losses from wildfires continue to develop, there are concerns that the FAIR schedule may require to turn to the primary insurers operating in the state for financing, pushing more insurers to leave the state.  

“When you’re having to bail out another insurer as a private insurer, you commence to consider whether or not it’s attractive to be in that location,” Russell said. “This is an off-pattern set of claims. What happens when we’re back in fire period in the summer and fall if the FAIR schedule is already under water?” 

The total worth of properties insured by the FAIR schedule totaled more than $458 billion as of September, up from $153 billion in 2020, according to the insurer’s website. Nearly $6 billion worth of property is in Pacific Palisades.  

“We are one occurrence away from a large assessment, there’s no other way to declare it, because we don’t have a lot of money on hand, and we have a lot of exposure out there,” California FAIR schedule President Victoria Roach said during a state hearing in March. 

While it is too early to propose deficit estimates from the most recent fires, spokesperson Hilary McLean said the FAIR schedule “has settlement mechanisms in place, including reinsurance, to ensure all covered claims are paid.” 

The insurer has been a “critical insurance alternative” for many California residents, according to Michael DeLong, a research and advocacy associate at the customer Federation of America, a customer advocacy throng. 

“It may require more funds. It may require additional back. But without it, California homeowners will be in an even worse circumstance,” DeLong said.  

(This narrative has been updated with additional information.)