The wildfires ravaging Los Angeles are on track to become the most expensive in U.S. history, triggering a major insurance crisis in California. A private weather firm, estimates the damage could range from $135 billion to $150 billion, with the potential for even higher figures. This has raised concerns over how homeowners will secure coverage for future disasters.
JP Morgan analysts predict insured losses of $20 billion, with uninsured losses possibly exceeding $100 billion, making the LA fires the costliest in U.S. history—close to 4% of California’s annual GDP.
Diane Delaney, executive director of the Private Risk Management Association, said, “This will probably be the largest number of people uninsured or underinsured during a massive catastrophic event like this,” according to The New York Post. JPMorgan analysts agree, noting that the majority of wildfire losses are likely in homeowners’ insurance, with smaller impacts on commercial and auto coverage.
Reports indicate the current damage is far greater than the destruction from the 2017 Tubbs fire and the 2018 Camp fire. The key difference lies in the value of the homes involved: over 10,000 buildings have been destroyed this week, most of them homes worth an average of $3 million, compared to about 18,000 buildings in the 2018 Camp fire, where the average home value was around $500,000.
David Burt, founder of DeltaTerra, a climate risk consultancy, estimates that homes in Pacific Palisades alone are worth nearly $13.5 billion. Despite the massive damage, experts believe insurance companies are in a strong position to compensate homeowners, thanks to their healthy reserves built up over the past two years.
Insurers have reduced their presence in high-risk areas but remain well-diversified in other regions. California’s insurance commissioner, Ricardo Lara, has ensured that homeowners in affected areas will be protected from policy cancellations or non-renewals for a year, which safeguarded over a million policies in 2024.
California’s FAIR program, established in 1968 to provide insurance for homeowners unable to find coverage, was initially a temporary solution but has expanded significantly, now covering over $450 billion in exposure, up from $50 billion in 2018.
To attract insurers back to the market, Commissioner Lara has allowed companies to increase premiums, as long as they don’t apply geographical exclusions. Susan Crawford, a climate and geopolitics expert, stressed that rapid climate change calls for political action. “The acceleration in ferocious weather events… should trigger awareness that actually things do need to change,” she stated.
With premiums likely to rise, Californians and possibly other Americans are preparing for higher costs. Last year saw major disasters like hurricanes Milton and Helene, causing damages of $160-$180 billion and $225-$250 billion, respectively. The U.S. State Department reported that climate-related disasters, such as winter storms and hurricanes, led to $182.7 billion in economic losses in 2024, double the amount in 2023.
