The Impact of California Wildfires on Increasing Home Insurance Costs

The Los Angeles wildfires are expected to be a major catastrophic event for the home insurance industry. However, analysts indicate that the insurance and reinsurance sector remains well-capitalized to manage losses, though some insurers may face greater challenges than others, Beinsure stated.

The longer-term impact on California’s insurance market from the Los Angeles County wildfires may be substantial, as insurers will further re-examine their appetites for wildfire risk as it has become highly unpredictable concerning location, intensity and seasonality.

Scott Wilk, an independent insurance agent and owner of the Santa Clarita branch of TWFG Insurance, described the insurance situation as “remarkably stable, considering everything that happened.”

The situation in insurance has actually been remarkably stable, considering everything that happened.

Scott Wilk, TWFG Insurance

Despite this, premiums have surged since the wildfires. Insurify projects a 21% increase in California premiums this year, even in areas far from Los Angeles, contrary to prior expectations of only modest rises in the state.

Chase Gardner, data insights manager at Insurify, explained that events like the California wildfires significantly raise projected premium increases. He noted that when insurance companies pay out more than they collect, they respond by raising prices.

Americans are moving to places with a high risk of climate disasters

Triple-I noted that Americans are moving to places with a high risk of climate disasters, such as the Southeast and Southwest, despite extreme weather events increasing in frequency and intensity in recent years. Losses related to natural disasters have increased tenfold from the 1980s to the 2020s (in 2024 dollars).

Disaster losses along coastal areas are likely to escalate in the coming years, in part because of significant increases in building and development.

Another unfortunate factor proliferating the rising costs of insurance is legal system abuse, which basically entails billboard attorneys swaying Americans toward litigation as a first step, rather than one of last resort

“This unfortunate phenomenon is a problem that needs more attention and fixing. For example, one element, which involves third parties funding litigation for profit has virtually zero transparency.

Third-party litigation insurance funding has become a multibillion-dollar global asset class of dark money, in which the likes of foreign governments can even invest and profit from the U.S. legal system. Beyond being a potential national security threat, these sovereign funds usually do not pay taxes on these investments,” Sean Kevelighan added.

Home insurance premium increases in all 50 states

In fact, home insurance premium increases in all 50 states this year, averaging around 8%. California’s increase is not the largest; Louisiana is projected to lead with a 28% rise.

Double-digit increases are also expected in non-coastal states such as Iowa and Minnesota.

The wildfires in the Los Angeles area have caused unprecedented property damage, with insured losses surpassing $50 bn, leading to a negative but manageable impact on insurers’ credit profiles. As for the total loss economic loss estimated to between $135 bn and $150 bn.

Benjamin Keys, a professor of real estate and finance at the Wharton School of the University of Pennsylvania, stated that rising costs are not confined to coastal Florida or wildfire-prone California.

Vermont faces higher costs from recent floods, Colorado sees sharp increases due to wildfires and more hailstorms, and several Midwest states also experience higher premiums.

It’s not just a story for areas like coastal Florida or the wildfire prone parts of California. It’s really a much more national story.

Benjamin Keys, University of Pennsylvania’s Wharton School

“We’re seeing states like Vermont with rising costs related to recent floods. We’re seeing states like Colorado, which historically was a middle of the pack state when it came to the cost of insurance, seeing rapidly increasing insurance costs due to recent wildfires, and increased hail storms in many parts of the Midwest,” said Benjamin Keys.

The official start of the Atlantic hurricane season kicked off June 1, and is forecast to be a busy one, which is why homeowners need to prepare. Yet many lack even the most basic preventative measures, unaware of the risks they face, according to a survey by the Insurance Information Institute.

Companies evaluating where to locate or expand often weigh the cost of living for employees, and the disparity in insurance premiums among states influences competitiveness.