Poorly planned real estate development, budget cuts in firefighting services by city government, questionable management of water reservoirs, shortcomings in the maintenance of the electricity distribution network: these are just some of the reasons behind the fires currently ravaging California, according to various sources consulted by the Insurance Portal. According to Climate Central, whatever the cause, it's important to remember that climate change is worsening the frequency and severity of extreme weather events and the damage they cause.
Climate Central is a non-profit organization that provides journalists with tools to better report on environmental issues. At a webinar held on Jan. 14, in which the Insurance Portal took part, Kaitlyn Trudeau, the organization's senior researcher, spoke about the impact of the “climate whiplash” of successive weather extremes. These ultimately create the conditions that allow fires to spread.
After several years of drought since the turn of the millennium, the winters of 2023 and 2024 were particularly wet in Southern California, allowing shrub vegetation to grow in abundance. Trudeau recalls a particularly intense atmospheric river episode in the winter of 2024.
However, barely 25 mm of rain has been recorded in the region since May 2024. These drought conditions and several heat waves, which are also weather extremes, have turned tree foliage and shrubs into fuel. Once ignited, the fires spread rapidly due to stronger-than-usual seasonal winds. These winds prevented the use of fire-extinguishing aircraft during the first hours of the fire on Jan. 7.
The winds
The fire season, which is recurrent in California, lasts two months longer than it did in the 1970s, points out Trudeau. The impact of climate change on barometric pressure, which in turn drives air currents and winds, is a poorly understood and little studied phenomenon, she adds.
As a result, it is not yet known whether climate change has contributed to the violence of the warm Santa Ana winds from northern Mexico. These winds are common in winter due to the morphology of the region, where mountain ridges are numerous both from south to north and from east to west. But the 80-90 mph (129-145 km/h) winds recorded in 2025 are well above seasonal values, say the experts present at the webinar.
Access to insurance
According to Morningstar DBRS, the January 2025 fires affecting the Los Angeles metropolitan area already represent the most expensive disaster of their kind in history, not only in California, but in the USA.
In a note published on Jan. 14, entitled Los Angeles Area Wildfires Will Cause Record Insured Losses; Solutions to Address Insurability Are Needed, the agency reports that at least 12,000 buildings have already been destroyed by the fires. Insured damage will be at least US$30 billion. In 2024 U.S. dollars, this bill far exceeds the most expensive losses, which also occurred in California, namely the Camp fires in 2018 ($12.6 B) and Tubbs in 2017 ($11.2 B).
In 4th place and again in 2018, the Woolsey fire cost $5.3 B in insured damage. Two other 2017 fires appear in this ranking: Atlas (6th) and Thomas (9th), which totalled $6.7 billion that year.
The agency notes that the average home value for the entire state is US$800,000, according to Zillow's estimate based on real estate transactions. In the two hardest-hit communities these values are higher: $3.3 million in Pacific Palisades and $1.2 million in Altadena.
Even though insurers like State Farm and Allstate have stopped taking on new business in California to limit their exposure to this risk, they will still have to pay their share of the damages, either those they insure directly or through their contribution to the California FAIR Plan.
As this program limits coverage to $3 million, Morningstar DBRS expects that insurers such as Chubb and AIG, who are more present in the high-value home market, will have to pay higher claims than their respective market share (see table below).
As of mid-2024, the public plan covered wildfire risk for approximately 4% of state-owned properties, up from 1.2% in 2017. This represents an estimated risk exposure of US$458 billion, including $6 billion in Pacific Palisades, one of the most devastated localities.
According to the agency, the growth of the public plan is not sustainable in the long term, as the program requires a functioning market for private insurers to contribute. Premiums will continue to rise, causing access-to-insurance problems for many homeowners.
Consequently, pooling the highest risks can only work if all players in the ecosystem (policyholders, insurers and reinsurers) benefit, explains Morningstar DBRS.
Following the Camp fire, north of Sacramento, and the Woolsey fire in Los Angeles, reinsurers have become increasingly reluctant to cover wildfire risk in California, the agency says. After several significant rate hikes by reinsurers, insurers have increased their ability to cover this risk on their own by diversifying their portfolios.
“As wildfires become a more frequent occurrence, capacity may be available to provide the coverage, including through multiple-peril alternative reinsurance capital instruments, but pricing is likely to remain a sticking point,” the agency adds.
Demographics
In its outlook for 2025, managing general agency Burns & Wilcox cites a study published in July 2024 by AM Best. Entitled Migration to CAT-Prone Areas Adds to US Homeowners Insurers’ Performance Volatility, the study highlights the significance of concentrated population growth in certain U.S. states. Between 2010 and 2020, some 53% of the country's population growth was concentrated in six states: California, Florida, Georgia, North Carolina, Texas and Washington State. “All are prime locations for CAT storms based on location and weather patterns,” the managing general agency points out in its outlook published at the end of 2024. The home insurance segment recorded an underwriting loss of $15.2 billion in 2023, AM Best reported.
Burns & Wilcox cited another figure reported in August 2024 by CoreLogic, according to which there are around 1.2 million homes located in areas with a very high risk of being hit by forest fires in the west of the country. Some 1.4 million properties are located in moderate-risk areas.
CoreLogic states that these 2.6 million homes have a combined reconstruction cost value of $1.2 trillion. Some 70% of these homes are located in three states: California, Colorado and Texas.