Billions of dollars' worth of losses are expected to mount for insurers across California amid scenes of widespread devastation

As the worst blazes in Los Angeles’ history continue to ravage the city, insurers are set to rack up billions of dollars in losses – and the devastation has sparked fears of a further exodus of insurance companies from the California market.
The escalating crisis saw many leading carriers quit the state’s homeowners’ insurance space and opt against renewing homeowner policies last year, with increased wildfire risk and a growing prevalence of natural disasters among the key reasons for that trend.
The fact that the latest inferno has arrived in an urban setting as densely populated as LA could prove especially alarming for insurers, according to California-based mortgage broker Amir Nurani (pictured top) of Left Coast Leaders.
He told Mortgage Professional America that the Palisades and Eaton fires, which firefighters continued to battle on Tuesday, could prove decisive in convincing other insurers to vacate the space as claims and losses mount.
“So many companies were leaving California and canceling policies [even] before something like this came to light,” he said. “The argument that these companies were making was that the losses were too great in California because of the fires.
“That makes some sense in central California because you see fires there all the time, or areas that were super rural. Now that an event like this has occurred, it basically empowers these insurance companies with an argument to say, ‘We don’t want to insure here anymore.’ And there will definitely be some that experience bankruptcy, that won’t have solvency issues to cover the claims.”
The severity of the latest crisis could serve as justification for insurers’ fears about operating in the state, Nurani suggested.
The devastating Southern California wildfires have claimed 5 lives, scorched 27,000 acres, destroyed over 1,000 structures, and left nearly 500,000 without power.https://t.co/gbS5MNoMUK
— Mortgage Professional America Magazine (@MPAMagazineUS) January 10, 2025
“There will be some that say, ‘Look, we were right to be concerned about being in the state’, and this is going to move the needle for them to get out,” he said. “You’re absolutely going to see insurance turmoil across the entire state as a result of this, and I think that you’ll see insurance companies continue to pull out.”
Is new regulation required to cover rising insurance costs?
Former insurance commissioner Dave Jones said this week that joint action was required from insurers to help stabilize the market, although he said the industry would be able to cover the multibillion-dollar losses expected.
He also told Insurance Business America that the state’s FAIR Plan, a safety net for property owners who can’t find insurance coverage due to their location’s high risk, should be able to cover claims through its own reserves and reinsurance.
Still, further moves on the regulatory side will be needed to assuage the fears of insurance giants, he added. “The big insurers didn’t leave completely,” he said. “But they’ve been clear that without regulatory changes, they can’t keep operating as they have.”
Lawmakers in California want to enhance the Plan’s capacity for paying claims and speed up the claims process for homeowners through a newly proposed FAIR Plan Stabilization Act, aimed at dealing with some of what Assemblymember Lisa Calderon described as the “inconceivable” loss facing Southern Californians.
“When disaster strikes, Californians should be able to count on their insurance coverage to pay out valid claims,” Assemblymember David Alvarez, cosponsor of the bill, said upon its launch.
How much will the LA wildfires ultimately cost insurers?
Last week’s blaze arrived squarely in the middle of one of the largest users of FAIR policies in California, Pacific Palisades, whose exposure reportedly amounts to almost $6 billion – well above the Plan’s supposed cash reserves.
There appeared to be no end in sight to the LA catastrophe on Tuesday, meanwhile, with officials warning winds posed a “tremendous threat” in worsening the blaze and California bracing for “extremely critical” fire conditions – meaning estimating the precise cost of the destruction remains a challenging task.
A report this week issued by Wells Fargo and Goldman Sachs said that insurers are currently facing as much as $30 billion in combined losses from the devastation.
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