As wildfires continue to wreak havoc across California’s Los Angeles County, the focus shifts to the plight of tens of thousands who face the uphill task of rebuilding their lives—and to the looming insurance challenges awaiting them.

Thousands of homes and structures have been destroyed, leaving property owners unsure whether their insurance will come through. Experts predict that these wildfires could lead to the highest insured losses in California’s history, with damage estimates nearing $20 billion.

Here’s what you need to know.

What is the extent of the wildfire damage?

The wildfires have claimed at least 27 lives so far.

According to the California Department of Forestry and Fire Protection (Cal Fire), the fires—first igniting in Pacific Palisades—have consumed 9,596 hectares (23,713 acres) and destroyed over 12,300 buildings and homes.

Currently, two major fires remain active in Los Angeles County. The Palisades fire has been 27% contained, while the Eaton fire has reached 55% containment.

How costly are the wildfires in Los Angeles?

Preliminary assessments suggest that the LA wildfires could become the most expensive wildfire disaster in California for insured losses, potentially exceeding $20 billion. Insured losses signify damages covered by insurance policies.

AccuWeather, a private forecasting company, places the total economic damage—including uninsured losses—between $250 billion and $275 billion. If accurate, this disaster would surpass Hurricane Katrina as the most expensive natural disaster in U.S. history.

Historically, the 2018 Camp Fire in Northern California holds the record for wildfire-related insured losses, totaling $12.76 billion, while insured losses from Hurricane Katrina amounted to $105 billion.

What actions did insurers take before the fires?

Even before these events, major insurers like State Farm and Allstate began canceling or refusing to renew policies in fire-prone areas.

State Farm, California’s largest insurer as of 2022, stopped renewing about 1,600 homeowner policies in Pacific Palisades by July 2024, reducing its footprint in the region significantly. This exodus reflects a broader trend; between 2020 and 2022, California homeowners saw 2.8 million policies non-renewed, including over half a million in Los Angeles.

Industry experts like Ben Keys from the University of Pennsylvania’s Wharton School highlight that California has seen widespread “non-renewals” from insurers in recent years. David Flandro, an analyst at global reinsurance broker Howden Re, voiced concerns that existing insurance coverage may fall short of addressing the scale of the wildfire damage.

Why did State Farm stop issuing policies?

In May 2023, State Farm announced a halt to accepting new property insurance applications, citing several challenges: “historic increases in construction costs,” growing risks from natural disasters, and difficulties in the reinsurance market.

Reporter Jake Bittle told PBS that insurers like State Farm took such measures partly due to California’s regulatory framework. Under Proposition 103, implemented in 1988, insurers must secure state approval for rate hikes and base their catastrophe-related pricing on historical data from the last two decades.

Insurers argue that given the increasing intensity and destructiveness of recent wildfires, relying solely on past loss data leads to inaccurate risk projections. Between 2014 and 2023 alone, the average number of California homes destroyed by wildfires surged nearly tenfold compared to the preceding decade, fueled by disasters like the 2018 Camp Fire.

Ray Lehmann from the International Center for Law and Economics suggests Proposition 103 has deepened the challenges in California’s insurance market by not allowing insurers to account for reinsurance costs or forward-looking catastrophe models involving climate change.

How are homeowners coping?

In response to dwindling insurance offerings, many California homeowners have turned to the state’s last-resort insurance program, known as the California FAIR Plan (Fair Access to Insurance Requirements). Established in 1968, FAIR targets those unable to secure traditional home insurance coverage.

Although privately funded, the FAIR Plan offers only basic protection, capped at $3 million—insufficient for rebuilding some homes. It is also notably more expensive than standard insurance; on average, FAIR Plan policies cost $3,200 annually compared to $1,480 for standard policies.

Yet, over 452,000 Californians now rely on FAIR as private insurers reduce their presence. A 2024 report showed that nearly 11% of homes in Los Angeles County remain uninsured, highlighting the precarious state of property coverage in the region.

The FAIR Plan’s exposure has grown dramatically, up 61.3% over the past year, with a total value of $458 billion in September 2024. Of this, $5.9 billion involves Pacific Palisades properties directly affected by the fires.

Are wildfires creating an insurance crisis?

Wildfires are increasingly severe due to the climate crisis, with experts warning of worsening impacts in the future. According to the U.S. Environmental Protection Agency (EPA), climate change has intensified wildfire frequency, duration, and scale. Governor Gavin Newsom emphasized that California now experiences wildfires year-round, not just during a seasonal window.

However, the insurance industry remains largely unprepared for the financial toll of these environmental shifts. A 2024 report from Insure Our Future attributes one-third of global weather-related insurance losses over the last 20 years to the changing climate.

Lehmann believes California’s leaders must act to make the state more insurable, suggesting investments in wildfire mitigation, stricter building codes, funding for underground transmission lines, and revised land-use policies as crucial measures to address mounting risks.

Can insurers handle these losses?

Despite the staggering costs, experts believe insurance companies are financially robust enough to absorb payouts. According to Ray Lehmann, most companies offering homeowners’ insurance in California remain in solid financial standing.

A Standard & Poor’s report concludes that insurers will enter 2025 with strong reserve portfolios, bolstered by healthy financial results in the preceding two years. Analysts at JPMorgan also anticipate the majority of wildfire-related losses to reside in homeowners’ insurance, with significantly less bearing on commercial or automotive coverage.

Yet, the Palisades Fire, which heavily affected luxury properties, could impose unique challenges for insurers handling high-net-worth clients whose homes may require substantial coverage.