
L.A. Wildfires Worsen California Insurance Crisis

Home insurers nowhere to be found during "one of the worst wildfire incidents on record”
“Schools gone, community centers gone, churches gone, houses gone,” said G-Rate Executive Vice President and Head of Insurance Jeffrey Wingate, rattling off the extensive damages stemming from the recent and multiple wildfires that have ravaged an estimated 40,306 acres across the region of Southern California.
Still, the meter is rising on the total cost of damage, leading mortgage and insurance experts to believe this may be the costliest wildfire disaster in California’s history. The Department of Forestry and Fire Protection (CAL Fire) estimates that 23,713 acres have burned in the Pacific Palisades region, where the series of fires began on January 7.
The Eaton Fire, north of Pasadena, is estimated to cover 14,117 acres and the damage from the Hurst Fire is estimated at nearly 800 acres. The largest fires in the Palisades and Eaton remain only 14% and 33% contained, respectively.
“In terms of insured impact… It's all over the place,” Wingate said, due to the ongoing nature of these wildfires. A wide range of estimates on the amount of insured damages have been thrown around. “Two days into the fires, JP Morgan [announced] that it was going to be a $10 billion event. Then it was a $20 billion event. And now I'm seeing figures up to $50 billion,” Wingate said.
The most damaging consequence, of course, is loss of life: the reported 24 lives that have been lost as a result of the fires is expected to rise. More than a dozen other people remain unaccounted for. Wingate and others have said: “This is going to be one of the worst wildfire incidents on record.”
Wingate added: “So, going forward, this definitely has a significant impact both on the insurance industry and the mortgage industry.”
Borrower Impact
California had already been facing an insurance crisis prior to the recent wildfires. In 2024, the state’s home insurance market had shrunk drastically after seven of the top-12 carriers — 35% of the state's insurance market in 2022 — exited or stopped writing new policies as NMP has previously reported.
“We've been having to place more business with excess surplus lines,” Wingate said. “Those are carriers that are not admitted in the State of California.”
Only four months prior, one of the state’s major insurers, State Farm, non-renewed more than 30,000 policies. Of the policies in the Palisades area, they non-renewed about 70% of the policies that had previously written there.
Wingate wonders, “Did those policies non-renew already?” Because many homeowners lost their insurance recently, he said, “Most of those policies have been put in with a FAIR Plan, which only covers fire and smoke damage. So it's really going to depend on what type of coverage that they have.”
The FAIR Plan, which provides wildfire coverage of up to $3 million for single-family homes and up to $20 million for commercial properties.
“If you just bought fire and smoke, that's all you're going to get. It doesn't cover things such as your jewelry, your valuable articles, or some other bells and whistles — it doesn't cover additional living expenses," Wingate explained. "There's no additional coverage that normally you would get unless you pay more money for it.”
The FAIR Plan reportedly had about $385 million in unreserved funds available to pay claims, according to FAIR Plan President Victoria Roach. The San Francisco Chronicle reported on January 9 that the plan is meant to cover an estimated $24 billion worth of residential and commercial property within the fires’ perimeters.
If current estimates are accurate, those $24 billion in claims would far exceed the FAIR Plan’s reserves. If that occurs, the FAIR plan would turn to reinsurance to cover the claims. However, Wingate said if reinsurance can’t cover the costs either, carriers will get surcharged as well as taxpayers.
“That's the only way,” Wingate said. “Everyone will have to pay, until this is corrected where the insurance industry can price for the risk.”
Additionally, Wingate believes there will be more carriers that stop writing new business in California. But, if insurers continue to write the business, premiums must increase, otherwise insurers will reject those homeowners because their location is too risky.
Mortgage Impact
“I would believe there's definitely going to be pressure on mortgages going into default just because people don't get the money from the insurance company or don't have the right coverage,” Wingate says.
Now the claims process under the FAIR plan is being tested, Wingate reveals that G-Rate has plans to discuss the claims process for their 300 clients with mortgaged homes in and around the affected areas. “This is all brand new,” Wingate said.
Any loan officers looking to close a deal in the Los Angeles area better scramble to get coverage for their clients or face a purchase price that’s double the amount they anticipated. With interest rates hovering between 6% and 7%, Wingate believes many homebuyers will struggle to afford those same homes within the area, saying, “It’s kind of a double whammy going forward.”
Moratoriums have put a hard stop to any home purchase deals in the affected region until the fires are contained. Wingate said that the only areas that G-Rate is able to write new business in are Sacramento and San Diego, but everywhere else in the region is barred by the moratoriums.
But mortgage professionals that are observing the fallout of this crisis may learn a valuable lesson from insurers about the importance of staying in touch and communicating with clients.
“The insurance industry, I think, has to do a better job of educating the customer of exactly what's going on versus the Insurance Commissioner trying to tell the public of what's going on,” Wingate said.
Going Forward
Previously not allowed, a new piece of legislation passed last month allows insurers to now consider predictive climate change risks when setting up their pricing. Not being allowed to do so had hindered insurers from being able to increase premiums and provide homeowners the proper coverage historically.
Wingate said the bill definitely marked progress, albeit a little late in the game.
Native Californians are aware of the powerful Santa Ana winds, but having the winds reach such a fierce velocity was more so unexpected.
Anecdotally, Wingate shared that his family and friends in California described the storms as something they had never seen before. He said, “Then on top of the fact they haven't had any rain — it's just unfortunate. These 1 in 100-year events are becoming 1 in 25-year events or 1 in 10-year events, which is unheard of.”
Another policy that’s in the final stages of approval would permit insurance companies to pass on the cost of reinsurance to consumers, which was not previously allowed. In essence, that’s good news on behalf of insurers, though it’s likely to worsen affordability levels on behalf of the consumer.
"As long as it's fully transparent to the customer in terms of their premium,” Wingate said. “You have a base price and you have the surcharges underneath that price, so you can explain it.”
Wingate shared that 11 G-Rate employees are in the danger zones that had to evacuate. "So I think every company out there's number one priority is making sure your employees are safe," he explained. "Number two is reaching out to your customers and helping them through the process of the claims."
Additionally, loan officers should check in on referral partners and the state of the overall community is important as well. But Wingate put it in simple terms when he said: "Help as many people as possible — that's the name of the game going forward."