Los Angeles fires, record climate losses drive US insurance premium hike

U.S. citizens across the country are being urged to brace for higher insurance premiums, as experts warn that the devastating fires in Los Angeles, which began on Jan. 7, coupled with last year’s unprecedented $183 billion in climate-related economic losses, point to significant shifts in the insurance market.

The fires ravaging upmarket Los Angeles districts Pacific Palisades and Malibu will be the most expensive ever to hit California, according to experts, who expect premiums to rise in a region already abandoned by many insurers in the U.S.

Analysts at JPMorgan estimated that the total cost of damage and insured damage had doubled in less than 24 hours to $50 billion and $20 billion respectively, and the flames were still advancing on several fronts Friday. These record levels already far outstrip the 2017 Tubbs fire and the 2018 Camp fire, whose estimates of insured damage have climbed, according to sources, to as much as $16 billion.

The value of the houses makes all the difference: At this stage, more than 10,000 buildings have been destroyed this week, the vast majority of them homes worth an average of $3 million. By comparison, some 18,000 buildings were destroyed in the Camp fire in 2018, but the average house was only around $500,000.

David Burt, the founder and director of DeltaTerra, a consultancy firm specializing in climate-related financial risks, estimates that the market value of the 15,400 homes in Pacific Palisades is close to $13.5 billion. Despite the high cost of the damage, experts believe insurance companies should have no problem compensating their customers.

According to Standard and Poor’s, the insurers are starting 2025 with comfortable reserves thanks to strong financial results over the last two years. They have also significantly reduced their presence in the Californian regions that are highly exposed to fire risk, and are also well diversified.

The JPMorgan analysts see things the same way, insisting that, at this stage, it expects “the vast majority of losses stemming from the wildfires to be concentrated in homeowners’ insurance,” and a “significantly lesser amount” in commercial fire and personal auto.

Insurance ‘exodus’ concerns emerge

“There’s been a mass exodus of big players from the market in these parts of California,” Ben Keys, a real estate and finance professor at the Wharton School of the University of Pennsylvania, told a conference Friday. “We’ve seen enormous non-renewals recently,” he said.

On Wednesday, California’s insurance commissioner, Ricardo Lara, announced that homeowners in areas affected by and around the fires would be protected for a year against non-renewal and cancellation of coverage. This type of measure protected more than a million contracts in 2024.

In 1968, the coastal state set up a public insurance scheme, called FAIR, for homeowners who could no longer find a private insurer. This “band-aid” was supposed to be temporary while people moved from one insurance policy to another, but has now expanded well beyond its intended use, lamented Keys, pointing out that its exposure had risen from $50 billion in 2018 to more than $450 billion today.

To bring companies back on board, Commissioner Lara has also initiated a reform process authorizing them to increase premiums on condition that they do not apply any geographical exclusions.

There is no longer any question of “cherry-picking” to select the best contracts, said Susan Crawford, an expert on climate and geopolitics at the Carnegie Endowment for International Peace.

“The acceleration in ferocious weather events … should trigger awareness that actually things do need to change,” she said. “We need some measure of political adjustments in reaction to rapid climate change.”

According to modeling by the specialist website AccuWeather, hurricanes Milton and Helene caused $160 billion-$180 billion and $225 billion-$250 billion in damage respectively. On Wednesday, it estimated the total cost of the Los Angeles fires so far at between $135 billion and $150 billion.

The State Department published a new national strategy on climate change Friday, stating that climate-related disasters like winter storms and hurricanes had caused $182.7 billion in economic losses in 2024—twice as much as in 2023.