As firefighters work tirelessly to control fierce wildfires that have forced many residents to evacuate, the escalating financial impact from the worst firestorm in Los Angeles history poses a significant threat to the property insurance sector and the homeowners throughout California who depend on it.

These devastating wildfires are likely to cause already high insurance premiums to rise further, potentially leading to more private insurers dropping existing policies or refusing to write new ones—not just in the Los Angeles area, but beyond.

“Obtaining insurance is going to become increasingly difficult, and it’s going to be tremendously more costly than it currently is. People must get ready for this,” warned Mark Newman-Kuzel, president and owner of The Mark Newman-Kuzel Agency in Los Angeles, noting at least six of his clients have already lost their homes, and many are anxious about their insurance policies. “As I remind my clients during their annual policy assessments, you should consider yourself fortunate if your policy hasn’t been canceled.”

With estimated economic losses exceeding $135 billion, consumer advocates have raised concerns that the FAIR Plan, California’s last-resort insurer for many homeowners, may run out of funds. This could compel it to seek compensation from private insurers operating in the state, making it even more challenging for homeowners to find affordable insurance.

“We are genuinely concerned about how this situation will affect both the availability and affordability of insurance in the future,” expressed Amy Bach, executive director of United Policyholders, a consumer rights organization.

What impact will the wildfires have on California’s insurance sector?

Insurance providers began distancing themselves from California following major wildfires in 2017 and 2018 that severely affected profits, leaving homeowners struggling to secure affordable policies. An analysis by the San Francisco Chronicle revealed that over 100,000 Californians lost their insurance coverage from 2019 to 2024. Last summer, State Farm eliminated more than 1,600 homeowners’ policies in Pacific Palisades, one of the fire-impacted areas.

“The industry is still recovering from the wildfires of 2017 and 2018, and now, here we are at the beginning of 2025,” stated Tim Zawacki, principal research analyst for insurance at S&P Global Market Intelligence. “The scars are deep, and I believe the industry will continue to approach this market with significant caution.”

Heading into 2025, there were signs of improvement for California’s insurance sector. The California Department of Insurance had recently introduced new regulations aimed at encouraging insurers to welcome new customers in high-risk regions, permitting them to transfer reinsurance costs to clients and leverage wildfire catastrophe modeling to adjust rates.

According to Janet Ruiz, a California spokesperson for the Insurance Information Institute, these new regulations should foster a “more competitive insurance market.” Recently, Farmers Insurance announced plans to expand its coverage across the state.

However, some experts caution that these new regulations might not be sufficient to persuade insurers to stay in California, particularly in the wake of this week’s devastating wildfires, which have led to the destruction of over 9,000 structures as of Thursday evening.

High claims costs, combined with the stark imagery of the devastation, will likely linger in the minds of executives, complicating efforts to reinvigorate interest in insuring homes in California, which many hoped the reforms would encourage, according to Bach.

Experts from AccuWeather predict the overall damage and financial losses could range from $135 billion to $150 billion, with chief meteorologist Jonathan Porter highlighting that the “wind-driven infernos have resulted in one of the most expensive wildfire disasters in modern U.S. history.”

A report from J.P. Morgan indicates that the “vast majority” of the losses will be concentrated in homeowners’ insurance, impacting both primary insurers and reinsurers with “significant losses.”

“We’re confronting a genuine crisis ahead,” remarked David Russell, an insurance and finance professor at California State University. “The commissioner’s office will need to approve these rate increases; otherwise, the availability of insurance will worsen significantly.”

Denni Ritter, vice president of state government relations for the American Property Casualty Insurance Association, a national organization representing insurers, said it’s premature to assess the impact of the wildfires on the market.

“Recent changes aimed at stabilizing California’s insurance market are crucial, but they have yet to be finalized or put into action,” Ritter stated.

Some have downplayed the potential consequences that the current wildfires might have on insurance providers’ presence in the state.

“The insurance sector recognizes that we will face catastrophes and wildfires. The strategies we’ve developed through this Sustainable Insurance Strategy take all that into account,” said Ruiz from the Insurance Information Institute. “One disaster won’t necessarily disrupt the plans we are implementing.”

What implications does this have for California’s FAIR Plan?

Many homeowners in California have increasingly relied on the FAIR Plan, the state’s last-resort insurance option, in recent years. Although the FAIR Plan has higher costs and limited coverage options, its client base has surged as homeowners find it challenging to obtain insurance from traditional private insurers.

As the financial toll from wildfires rises, there are worries that the FAIR Plan might need to seek funding from the primary insurance companies in California, potentially leading to more insurers exiting the market.

“If you have to support another insurer, you start to question whether it’s worth staying in that region,” Russell explained. “This is an unusual situation with claims. What will happen during the next fire season in the summer and fall if the FAIR Plan is already struggling financially?”

The total insured property value under the FAIR Plan reached over $458 billion as of September, a significant increase from $153 billion in 2020, as stated on the insurer’s website. Nearly $6 billion of this property is located in Pacific Palisades.

“We are just one major event away from financial assessments; I can’t stress this enough, as we have limited funds available and significant exposure,” said Victoria Roach, president of the California FAIR Plan, during a state meeting in March.

While it is premature to forecast losses from the recent fires, spokesperson Hilary McLean mentioned that the FAIR Plan “has mechanisms in place, including reinsurance, to handle all covered claims effectively.”

The FAIR Plan has been deemed a “vital insurance option” for numerous California residents, according to Michael DeLong, a research and advocacy associate at the Consumer Federation of America, a consumer advocacy organization.

“It might need additional funding and support. Without this, California homeowners could find themselves in a worse predicament,” DeLong noted.

(This article has been updated with additional details.)