[co-author: Melody Chen, and Tom Goimarac]
Rising Incidence and Severity of Wildfires in California
Wildfires in California are occurring with greater frequency, causing more destruction, and increasingly igniting in unexpected locations and at unforeseen times. Since the 1970s, the length of the wildfire season in western states has increased from five months to over seven months. Over the past three decades, the annual number of acres burned in California and the persistence of drought have been increasing.
The Palisades and Eaton fires in Los Angeles that started on January 7, 2025, burned 37,469 acres and caused the loss of 30 lives. The LA wildfires occurred outside of peak fire season in Southern California, which usually begins in May or June and runs through October, due to a prolonged winter drought and exacerbated by dangerously high winds. Combined, the two fires are expected to be the most expensive wildfires in the history of California, with preliminary estimated property and capital losses ranging between $76 and $131 billion, and insured losses estimated at up to $45 billion. As of March 2025, insurers have paid out $12.1 billion. The fires are expected to increase property insurance costs across California.
How Insurers Are Responding
In an effort to reduce their exposure, insurers are responding to elevated wildfire risks by limiting underwriting capacity, increasing premiums, and exploring innovative coverage options. They are utilizing sophisticated wildfire assessment tools to understand policyholders’ exposure and calibrate underwriting decisions. In an apparent effort to minimize their risk, some insurers are implementing steep rate increases of up to 50 percent. Other insurers are not renewing existing policies, declining new policy applications, and exiting some markets entirely. For example, State Farm, California’s largest private homeowner insurer, stopped writing new homeowner policies in California beginning in May 2023. In March 2024, State Farm announced that it would not renew coverage for 30,000 homeowners, rental dwellings, and other property insurance policies. The departure of major insurers from the market has led to a rise in the use of the California FAIR Plan, which provides coverage for those unable to obtain it through the private market.
In response to some insurers leaving parts of California or limiting coverage options, California’s Insurance Commissioner announced a new regulation in December 2024 that requires insurers to insure wildfire-prone areas if they want to do business in California. To incentivize insurers to cover wildfire-prone areas, the regulation allows insurance companies to calculate premiums using catastrophe models, tools used to estimate the potential losses from catastrophic events based on a variety of inputs and assumptions, and pass on reinsurance costs to consumers, all of which is likely to further increase premiums for those in wildfire-prone areas. The regulation also requires insurers to increase their issuance of policies in fire-prone areas by 5 percent every two years until their policies in high-risk areas comprise 85 percent of their total market share. However, the regulation also requires insurers to use modeling that accounts for the mitigation efforts of homeowners and businesses to make their properties safer from wildfires.
Takeaways for Policyholders
Policyholders should consider evolving wildfire risks in making homeownership and business decisions and assess the scope and cost of their long-term insurance coverage needs. In addition, policyholders need to understand policy exclusions, limitations, and potential coverage gaps in evaluating new policies and policy renewals.
Policyholders who obtain coverage through the California FAIR Plan must be vigilant in making sure that they obtain adequate limits of insurance to rebuild their homes. In Hughes v. Farmers Insurance Exchange, the California Court of Appeal held that Farmers was not vicariously liable for the negligence of the Farmers agent who helped the homeowner (Hughes) obtain fire insurance coverage through the California FAIR Plan. Hughes obtained two insurance policies from the agent, who had a Farmers sign on her office door and a Farmers email address: (1) a homeowner’s policy from Farmers to cover the property from all perils not insured by the FAIR Plan and (2) a FAIR Plan policy covering the peril of fire. The agent used Farmers’ replacement cost estimating software to estimate the replacement cost of the home at $1.2 million and helped Hughes obtain a FAIR Plan policy in that amount. Unfortunately, when Hughes’ home suffered fire damage, the estimated reconstruction cost was $3 million—far more than the $1.2 million FAIR Plan policy limit. The court of appeal held that, even though Hughes purchased the FAIR Plan policy from an agent authorized to sell Farmers insurance, the agent lacked authority to act on behalf of Farmers for purposes of the FAIR Plan, and that Farmers was not liable for the agent’s negligence. This is a reminder that homeowners who obtain coverage through the FAIR Plan should be certain that the policy provides adequate limits of insurance.
Homeowners in wildfire-prone areas should take steps to harden their homes against wildfire risks. Taking concrete action to make their homes safer against wildfires will minimize homeowners’ losses in the event of a fire and reduce their homeowner insurance policy premiums.
In addition, homeowners should stay up to date on new developments in the insurance market and understand their legal rights in the event of a wildfire. For example, Governor Gavin Newsom declared a state of emergency in Los Angeles and Ventura counties in response to the recent Palisades and Eaton fires. Under existing California law, once a property has been declared a total loss, insurers are required to make certain advance payments to the policyholder. This includes an advance of additional living expenses (ALE) of no less than four months of living expenses and payment for loss of personal property (contents) in an amount of no less than 30 percent of the policy limit, without the insured having to provide an itemized inventory.
Businesses, commercial property developers, and investors should consider wildfire risks, insurability, and the cost of insurance in their decision-making. Experienced insurance brokers can advise businesses on coverage needs and options based on what is available in the market and the insurance programs of similarly situated businesses. Larger commercial enterprises should consider retaining coverage counsel to review coverage forms and exclusions before policies are issued and/or at renewal. Coverage counsel may be able to suggest workarounds for policy exclusions and ways to broaden coverage to mitigate against potential uncovered losses. In the event of a claim, coverage counsel can assist insureds with tendering the claim to the insurer, understanding their legal options, and expediting claim resolution.
The California insurance landscape is evolving due to wildfires. Insurance coverage, policy limits, and premiums will continue to be affected—not only for those in wildfire-prone areas but across the entire California market. Staying informed about the impact of wildfires on the insurance market is critical to decision-making for those residing or doing business in California.
©2025 by the American Bar Association. Reprinted with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
