In January 2025, the Palisades and Easton Fires in California devastated the Los Angeles area and surrounding regions. These fires have emerged as one of the costliest events worldwide, collectively accounting for $52.5 billion in economic losses and $37.5 billion in insured losses.
Homeowners and businesses are facing more than just property loss. Secondary risks — like landslides, property access, labor shortage, increased costs of materials, business interruptions, environmental contamination, and liability concerns — further complicate the picture.
How will these wildfires affect the insurance market, and how can property owners adapt? The changes to underwriting standards, increased focus on fire mitigation, and underinsurance challenges are just a few relative certainties.
The ongoing California wildfires affect both private homeowners and commercial business owners, but private homeowners have undeniably experienced the majority of loss and destruction. Approximately 90% of submitted property claims relating to the CA wildfires have come from homeowners.
In the near term, an already challenging CA insurance market will likely become even more difficult to navigate as the following factors come into play:
In recent years, a number of carriers have pulled out or stopped writing new business in California, citing increasing wildfire risks. The recent wildfires may prompt several more insurers to follow suit, exiting the CA marketplace across all property and casualty (P&C) lines, especially if they are already operating at a loss. State regulations play a key role in this.
The California Department of Insurance (DOI) limits how quickly insurers can raise rates, making it difficult to achieve rate adequacy in high-risk areas. It’s going to be nearly impossible to profitably write insurance in the State of California.
If these carrier exits happen, the already minimal capacity of most carriers to offer coverage in CA will be meaningfully diminished, leaving homeowners and businesses with even fewer options.
While it’s too early to predict exact rate increases, with decreased capacity and fewer insurers in the market, available coverage will likely come at an exponentially higher rate than ever before.
Reinsurance — the financial backing that insurers rely on to help cover large claims — heavily influences rates. Reinsurers may decide that wildfire risks are too high, which would push costs higher for insurers, trickling down to consumers, further increasing rates for both residential and commercial property owners.
Underwriters will likely change policy structures and language in response to wildfire losses. Retentions — the amount of money a policyholder pays before their insurance company starts paying for a claim — will increase. Coverage terms offered will likely exclude the peril of wildfire or impose drastically higher minimum deductibles. Terms and conditions within the policies could change to limit coverage for more property owners.
Insurers in the California market are now scrutinizing individual properties more closely.
Fire mitigation measures will become more important to insurers and will influence how they set rates. The requirement and execution of property-specific wildfire mitigation practices will be non-negotiable.
Insurers are also adopting more sophisticated wildfire modeling. They rely on wildfire risk scores when setting rates and coverage terms, factoring in home construction materials, defensible space, and distance from fire stations. However, many models still rely on broad assumptions and don’t necessarily factor in individual property mitigation efforts. The models calculate fire risk scores using averages — the price of homes, construction year, and regional fire history.
Because location matters more than mitigation in many insurers’ models, even homeowners who invest in fire mitigation may still face non-renewals if they’re located in high-risk zones. Carriers will be paying close attention to aggregation within their portfolios.
Moving forward, moratoriums and non-renewals will be further reaching and more frequent than ever before in the CA market.
For homeowners and businesses struggling to find coverage, the California FAIR Plan has become the insurer of last resort. But there are concerns about whether it can withstand the mounting losses from wildfires.
The FAIR Plan’s solvency is in question and, if it survives, will require hefty property tax increases to accommodate growth, which, between 2020 and 2024, doubled. The state could also require insurers across the state to contribute to the FAIR Plan, leading to higher premiums statewide — even for those outside wildfire-prone areas.
Force-placed coverage is another growing concern. If homeowners or businesses fail to secure insurance, their lenders may impose high-cost, limited-coverage insurance policies — often at much higher rates than traditional insurance.
When property owners turn towards recovery and begin to rebuild, they will likely face additional challenges:
While fire damage is the primary concern, the secondary effects of wildfires could create billions in additional claims and increase certain liability risks:
With the insurance landscape tightening, homeowners and businesses need to take steps to protect their properties and remain insurable. Here are key actions to consider:
Despite the current market instability and shrinking coverage availability, insurance markets are cyclical. Some insurers will exit, while others may re-enter if prices rise high enough to justify the risk.
For example, insurers within the excess and surplus (E&S) market are increasing rates more quickly than admitted carriers because the DOI does not regulate their pricing in the same way. As these rates continue to rise, they could eventually attract insurers back to the state and lead to a more competitive market.
In the meantime, it’s important for homeowners and businesses to stay informed about emerging options and alternative coverage solutions, including:
There’s no reason to believe these devastating events will stop occurring. Urban wildfires and extreme weather affecting metropolitan areas are likely to grow in frequency and severity. Adaptation, education, and mitigation are key as California’s insurance market continues to evolve.
California’s wildfire landscape continues to reshape how homeowners and businesses approach property risk, resilience, and insurance protection. As fire seasons grow longer and more severe, property owners must navigate rising premiums, evolving underwriting standards, and more limited coverage availability in high-risk areas.
Working with experienced risk and insurance specialists can help property owners better assess wildfire exposure, strengthen their risk profile, and develop coverage strategies aligned with today’s evolving insurance market. The Brown & Brown team works with homeowners, businesses, and advisors to analyze risk, navigate complex insurance options, and build resilient protection strategies for properties located in wildfire-prone regions.
Marshall Heron is the National Real Estate Practice Leader. For more than 25 years, Marshall Heron has been collaborating with commercial real estate investors, developers, and owners to design insurance and risk management strategies. He specializes in finding innovative solutions for complex real estate exposures.
Tim Johnston is Vice President, Private Client Group, at Brown & Brown. With more than 15 years of experience, he specializes in private client services, risk analysis, and high-value property protection. He advises affluent clients on managing climate volatility, fire resiliency, and complex property exposures through customized insurance program design and strategic risk mitigation. Tim develops individualized risk profiles, evaluates risk tolerance, and conducts comprehensive coverage reviews to ensure portfolios align with each client’s objectives. As a Private Client Group leader and technical resource, he provides mentorship across the practice while delivering trusted guidance to clients and partners.