Los Angeles Fires Could Push California’s Insurance System to the Brink

The fires in Los Angeles could push California’s insurance system to the breaking point

Who Blanca Begert, Camille von Kaenel, Thomas Frank, Zack Colman & E&E News

KLIMAWIRE | LOS ANGELES – Wednesday’s storm in an affluent area of ​​Los Angeles could be the latest to disrupt California’s insurance market.

The state’s insurance market has been teetering on the brink of insolvency for years thanks to catastrophic fires that have prompted many insurers to stop writing new policies and cancel existing ones. Wednesday’s wind-driven fires in a part of Los Angeles lined with multimillion-dollar homes could hasten its collapse.

“It’s obviously going to be bad,” said Rep. Brad Sherman, a Democrat who represents the district between Malibu and Santa Monica, where the Palisades Fire – one of six uncontained fires across the region – had destroyed more than 1,000 buildings by Wednesday evening. . “We’ve already seen big increases. And we have seen these increases not only in houses near the bushes, but also in areas where you are surrounded by other houses.’

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President-elect Donald Trump called the case Wednesday himself acclaimed democrats Tens of thousands of people were forced to flee their homes due to deadly wind-driven tornadoes. “The fires in Los Angeles may go down in dollar terms as the worst in our nation’s history,” he wrote. on Truth Social. “In many circles, there is doubt that insurance companies will have enough money to pay for this disaster.”

The state’s insurer of last resort, known as the FAIR Plan, announced it would be able to pay. “We are aware of misinformation being posted online about FAIR Plan’s ability to pay claims,” ​​said Hilary McLean, spokeswoman for FAIR Plan. “It is too early to provide loss estimates as claims have just begun to be submitted and processed,” McLean wrote, noting that the plan was prepared for this type of disaster and has payment mechanisms including reinsurance to cover claims.

But California faces a double-barreled threat: Private insurers could continue to cancel policies and refuse to write new ones, as they have increasingly done after a series of devastating wildfires that began with the Tubbs fire in northern California in 2017. And the FAIR plan, which is absorbing the shrinking private market, could run out of money to pay its claims.

That shouldn’t mean failure, McLean points out. Instead, it would pull from major insurers to reimburse its costs under state law, raising rates on all private policies and raising rates statewide.

“This is something everyone is preparing for,” said Karl Susman, a West Los Angeles insurance broker who files dozens of claims on behalf of clients. “That’s why the rates are going up. That’s why the carriers are panicking.”

State Farm dropped nearly 70 policies in the Pacific Palisades neighborhood last year, according to a state filing, more than any other ZIP code in the state, in a sign the neighborhood was viewed as dangerous. That forced more people into the FAIR Plan, which was originally created in the 1960s to insure the riot-torn neighborhoods of Los Angeles, but has since found more demand in rural and suburban fire-prone regions.

In Pacific Palisades alone, the FAIR plan insures nearly $6 billion in property, according to September data — more than all four California communities. Statewide, the total value of FAIR-insured property was $458 billion, three times the total value insured in 2020, according to FAIR Plan data.

AccuWeather estimates of $52 billion to $57 billion in damage on Wednesday could continue to rise as hurricane-force winds forecast for Wednesday and Thursday put thousands more homes at risk.

“If additional structures burn in the coming days, it could become the worst wildfire in California’s modern history,” AccuWeather Chief Meteorologist Jonathan Porter said in a statement.

State officials, who have been trying to stem the exodus of insurers, said they were prepared to limit the impact, including by passing a temporary moratorium on renewals in recently burned areas.

“Insurance companies are making a commitment to California, and we will hold them accountable for their promises,” Insurance Commissioner Ricardo Lara said in a statement.

Susman called the fires a “testing ground” for the rules it ended a few weeks ago to attract property insurers to the market and force them to write more in fire protection areas.

The rules allowed insurers to pass on reinsurance costs to customers and use so-called “catastrophic models” of the future that take into account the types of fires caused by Los Angeles’ climate to raise rates. exchange for meeting a certain policy quota in disaster-prone areas. Insurers such as Allstate have promised to return to the market in light of the changes.

“If they hadn’t gone into effect in December, I could see the carriers literally saying, ‘OK, we’re leaving. We’re done,'” Susman said of the rules. because they can have more specific ways of making fees, they can find their way back into the market.”

But that may be optimistic. Michael Wara, director of Stanford’s Climate and Energy Policy program and a fire advisor to the state Public Utilities Commission, said the new rules may not be enough to keep insurers around if insurance payouts are too high.

“We have now crossed a threshold where we need greater measures to create a fundamentally solvent insurance system,” he said. “And these measures will be politically difficult. They can pose a great risk to the balance sheet of the state of California.”

Reprinted E&E News Courtesy of POLITICO, LLC. Copyright 2025. E&E News provides essential news for energy and environmental professionals.