What do the LA wildfires mean for home insurance?

• Deadly wildfires among most destructive in state history
• Climate-driven disasters wreak havoc on insurance
• California approved major insurance reforms in 2024

The devastating Los Angeles area wildfires are among the most destructive blazes in U.S. history, killing at least 10 people, damaging or destroying some 10,000 structures and causing astronomical damages that threaten to batter the state's already precarious insurance market.

Damages are projected at $150 billion or higher, and some estimates peg insured losses between $8 billion and $20 billion - sure to wreak havoc on homeowners insurance availability and rates already upended by climate-driven catastrophes like fires, floods and storms in recent years.

Here's what to know about wildfires, climate change and insurance:

How is climate change affecting the cost and availability of homeowners insurance?

As climate change fuels the conditions that can lead to more destructive events, insurers in disaster-prone U.S. states like California, Louisiana and Florida have been reducing their offerings or leaving the states entirely.  

As consumers are left with fewer options, state-run "insurers of last resort" – like the California FAIR Plan – have been taking on more policies. This puts added strain on markets that are at risk of further disruption with each looming disaster.

Some 450,000 homes, or about 3% of all state residents, were covered through the California state plan in September -  a 40% increase from a year earlier, according to a Reuters data analysis.

In Pacific Palisades, which has been particularly hard hit by these fires, 1,430 homes were on the state plan, up 85% from a year earlier.

"We want to take policies out of the California FAIR plan, as it is the insurer of last resort, and we want to make more admitted carriers' policies available to Californians," said Janet Ruiz with the Insurance Information Institute, an industry research group.

What has California state's response been?

California issued a series of reforms last year intended to make things easier for wary insurance companies to operate in the state, while also affording consumers some degree of protection against sudden cancellations or non-renewal notices.

State Insurance Commissioner Ricardo Lara also announced plans this week to issue a one-year moratorium on homeowners insurance cancellations or non-renewals due to wildfire risk for people affected by the Los Angeles County fires once the fire perimeter is determined.

"Insurance companies are pledging their commitment to California, and we will hold them accountable for the promises they have made," Lara said in a statement.

What should affected homeowners do?

If evacuated, people should keep their receipts if they're staying at a hotel or eating meals out because those could be covered under "additional living expenses" in homeowners policies, Ruiz said.

"Also, get in touch with your insurance company right away," she said. "Once you are able to return home and find out if there's damage, take photos and videos of the damage, the damaged items, and contact your insurance company again to have a claims adjuster come out and assess the damage."

How will insurance companies operate moving forward?

Some companies that had been trying to re-enter the market in California after other recent major wildfires could be given pause by the current devastation, officials warn.

"We will be watching to see whether the collapse of a trembling home insurance market accelerates after this added shock," Sen. Sheldon Whitehouse, a Rhode Island Democrat, wrote in a post on X on Thursday.

Ruiz said the recent policy changes in the state, such as allowing insurers to use forward-looking catastrophe modeling, should help. Such modeling uses simulation rather than relying on actual past losses to assess potential risk and set rates.

"I don't think wildfire(s) or convective storms will be unmanageable to insure," she said. "California is a large state. The insurance industry certainly wants to be a part of California's insurance market, and we are committed to making it happen."