MEMO: The L.A. Fires and the Insurance Crisis 

To: Interested Parties
From: Unlocking America’s Future
RE: Memo: The L.A. Fires and the Insurance Crisis 
Date: January 23, 2025

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The fires in Los Angeles have so far killed at least 27 people, destroyed thousands of structures, and devastated entire communities. As even more fires begin to rage in L.A. and surrounding areas, another crisis awaits the people of Los Angeles: the insurance crisis. 

Climate-related disasters are threatening the financial viability of insurance providers and raising costs for homeowners, and the Trump administration and MAGA Republicans are already implementing policies that will exacerbate these vulnerabilities.

“As fires blaze, storms rage, and waters surge, worsening climate disasters are becoming a part of everyday life for tens of millions of Americans,” said Kyle Herrig, spokesperson for Unlocking America’s Future. “While Trump’s first day in office showed that he’ll put himself and Big Oil ahead of American families, we must prepare for the threats climate change poses to our families, communities, and businesses. That means ending reliance on fossil fuels, prioritizing responsible investing, and fostering climate resilience in the insurance sector and beyond.”

Unlocking America’s Future has outlined what to expect from the housing insurance market as homeowners begin to rebuild their lives: 

The Damage: Fire damage in L.A. will likely be the costliest in U.S. history. As of January 14, estimates of insured losses could reach $30 billion, with total economic losses from the fires exceeding $250 billion and climbing. 

The Insurance Crisis: California has one of the highest insurance nonrenewal rates in the nation, and major insurers have dropped thousands of customers in Pacific Palisades, leaving the state-run insurer of last resort with nearly $6 billion in exposure. 

• Seven out of the 12 biggest home insurers have limited their coverage in California over the past two years, driven in part by increased fire risk.
  
  • Nonrenewal rates are among the highest in the nation, with some areas experiencing a 500% increase since 2018, according to a Senate Budget Committee investigation.
    
  • In July 2024, State Farm dropped about 70% of policies in Pacific Palisades, reflecting a trend of private insurers dropping California policies or halting underwriting.
    
• Homeowners in Pacific Palisades have increasingly shifted to the FAIR Plan, which provides coverage for homeowners shunned by private insurers.
  
  • The FAIR plan covered roughly 1,400 of the town’s 9,000 homes in 2024, more than quadruple the number in 2020, and a 70 percent increase from 2023 to 2024.
    
  • Pacific Palisades is the fifth most wildfire-exposed market for FAIR in Southern California, with $5.9 billion of exposure.
    
• California Insurance Commissioner Ricardo Lara has issued a mandatory one-year moratorium on non-renewals and cancellations in zip codes affected by the Palisades and Eaton fires. 

The Future of California’s Housing Insurance Market: Multibillion-dollar losses will further destabilize California’s home insurance market, driving up premiums and reducing the availability of home insurance.

• Denise Rappmund, a senior analyst at Moody’s Ratings, projects that the fires will have “widespread, negative impacts for the state’s broader insurance market,” and the cost “will likely drive up premiums and may reduce property insurance availability.”
  
• Private insurers may seek “temporary supplemental fees” from their policyholders across California to cover losses incurred by the FAIR Plan.
  
  • Under a plan recently outlined by California Insurance Commissioner Ricardo Lara, at first, uncovered costs would be split between insurers and policyholders through additional assessments on any property or casualty policy, including auto. This could potentially put all Californians with private insurance on the hook for massive wildfire losses.