With over 13,000 homes at risk, the losses from the Los Angeles wildfires could approach $10 billion, according to preliminary estimates by J.P. Morgan. The financial devastation threatens to upend an insurance market that is already under profound financial strain.
The fire raging in the Palisades is affecting not only one of the city’s wealthiest neighborhoods, with an average home price of almost $3.5 million, but also one of its most vulnerable to wildfire. Homes, nestled in the hillside, face the ocean, capturing not only the spectacular Pacific Ocean views, but also the dangerous Santa Ana winds. When one home burns, it ignites the next.
“You have uncontrolled fire spread — you could lose $30 billion overnight,” said Michael Wara, the director of the climate and energy policy program at the Stanford Woods Institute for the Environment. The fires come at a particularly vulnerable moment for California, as the state has been grappling with a crippling homeowners insurance crisis. At the end of last year, the state insurance commissioner implemented new policies to stabilize the industry, but those changes might not have come soon enough to protect insurers and the state from a fiscal catastrophe.
The changes to the rules governing insurance allow companies to factor catastrophic risk into their policies and pass on more costs to homeowners. These changes come in response to most of the major insurers in the state drastically scaling back their coverage following back-to-back wildfires in 2017 and 2018. The losses from the Camp and Tubbs fires in Northern California and the Woolsey fire in Southern California totaled roughly $23 billion. In 2017 and 2018, the state’s insurance companies collectively paid out more than twice as much in claims and expenses than they charged in premiums, according to the Insurance Information Institute.
In response to the state policy changes, Allstate announced last year that it would consider returning to the California market after halting new policies in 2022. Companies have been raising rates aggressively, like State Farm, the state’s largest home insurer, which requested substantial rate increases in 2024. The average homeowners policy in Los Angeles is $1,583 per year, higher than other parts of California, but lower than the national average, according to Insure.com. However, in Pacific Palisades, the average premium was $7,520 a year, according to a San Francisco Chronicle analysis.
Many homeowners cannot get or keep coverage. Last summer, 70 percent of State Farm’s customers in Pacific Palisades, about 1,600 homeowners, lost coverage when the insurer dropped 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 had lost coverage from 2019 to 2024. The actor James Woods, who had to evacuate his Pacific Palisades home, posted on the social media site X at 1:14 a.m. on Wednesday that a major insurance company had “canceled all the policies in our neighborhood about four months ago.”
Homeowners have largely replaced their fire coverage with a state plan of last resort called the California FAIR plan, an insurance pool, which covers up to $3 million in damages for residential properties and $20 million for commercial ones. Between September 2020 and September 2024, the number of FAIR policies for dwellings grew by 123 percent, to 452,000 policies. (Homeowners with more expensive properties often get additional fire coverage from luxury insurers with costly surplus line policies.)
State rules mandate that if the FAIR plan needs additional funds to cover all its claims (the plan’s exposure in Pacific Palisades alone is $5.9 billion), it can turn to the private insurance companies operating in the state to cover the gap.
Insurance companies are already strained and are reluctant to do business in California, so the losses this time might be the state’s first real test of its emergency backup system. “If there is a loss event that’s anything like what we experienced at 2018 or 2019,” said Mr. Wara. “We could be in a different world with insurance.”
