Insurance Perspective: An Insurance Market Status Update Amidst the LA Wildfires

With virtually every major headline featuring LA wildfire updates, we note that the devastating wildfires also impact the long-term availability and affordability crisis in the California property insurance market. At least seven insurers have backed away from writing new business in wildfire-exposed regions in the last two years and/or nonrenewed policies, citing the inability to adjust rates to match exposure.

California Insurance Commissioner Ricardo Lara recently issued a landmark regulation to allow insurers the ability to use catastrophe model output and the cost of reinsurance in their ratemaking processes rather than solely historical data. The rule comes with the caveat that they must increase their share of the homeowners insurance market in wildfire-prone areas.

As a result of insurer exits, the California FAIR Plan’s market share has increased significantly. As of September 2024, the Plan’s total exposure stood at $458 billion, a 61.3% increase in just one year and well above the $153.4 billion in exposure the Plan covered in September 2020.

Total policies in force for the FAIR Plan rose 41% between September 2023 and 2024, while policy count over the last four years has jumped 123% for dwelling policies and 161% for commercial policies. In the Pacific Palisades region, where wildfires have burned over 15,000 acres to date, the FAIR Plan has an estimated $5.8 billion in exposure.

According to data from AM Best, as of 2023, the top homeowners insurers in California were State Farm, Farmers Insurance Group, Liberty Mutual, CSAA Insurance, Mercury Insurance, and Allstate.