Los Angeles Wildfires Likely to Trigger Record Insured Losses, Morningstar Says

The devastating wildfires currently ravaging Los Angeles are expected to result in record-breaking insured losses, according to a recent report by Morningstar. The fires, which have already destroyed thousands of homes and businesses, are likely to cause significant financial strain on the insurance industry.



The fires, which began on January 16, 2025, have already caused an estimated $135 billion to $150 billion in damage, according to AccuWeather. This includes both insured and uninsured losses, making it one of the costliest wildfire disasters in modern U.S. history. The fires have also resulted in at least five deaths and the evacuation of more than 180,000 people.

The insurance industry is expected to face significant challenges in the wake of these fires. Many insurers have already pulled back from the California market due to the increasing risk of wildfires, leaving homeowners with limited options for coverage. The FAIR Plan, California's insurer of last resort, has seen its exposure in Pacific Palisades alone climb to $5.89 billion, according to its website.



Insurers are also facing pressure from regulators to increase home coverage in areas prone to wildfires and to charge higher premiums to protect themselves from catastrophic losses. These changes, while necessary for insurers to manage their risks, may lead to significant premium increases for homeowners.

The recent hurricanes that impacted the U.S., including Hurricane Milton and Hurricane Helene, caused damage estimates ranging from $160 billion to $250 billion. In comparison, the estimated damage from the Los Angeles wildfires is significantly higher, indicating the severity of the current crisis.

In conclusion, the Los Angeles wildfires are expected to result in record-breaking insured losses, placing significant financial strain on the insurance industry. Insurers will need to adapt to the increased risk and potential losses in California by implementing changes such as increased use of sophisticated modeling and AI, reduced exposure and higher attachment points, increased rates and higher deductibles, and strengthening the FAIR Plan. Government intervention will also play a crucial role in addressing the insurance crisis in California, through regulatory changes, subsidies and tax incentives, public-private partnerships, and investment in wildfire prevention and mitigation.