Devastating wildfires near Los Angeles have burned nearly 30,000 acres and forced the evacuation of over 100,000 residents, with early estimates predicting economic losses exceeding $50 billion and insured losses of $10 billion.
The California Department of Forestry and Fire Protection (Cal Fire) reported six separate fires burning in the Los Angeles region, the largest in Pacific Palisades – an area between Santa Monica and Malibu with many high-value homes. By late afternoon Weds, Jan. 8, the Palisades fire had consumed over 17,000 acres, per Cal Fire.
Two other major fires, the Eaton Fire and Hurst Fire, are burning just north of Los Angeles in Pasadena and San Fernando Valley and have consumed over 10,000 acres and 800 acres, respectively.
At least 1,000 structures have already burned in the Palisades fire, according to Los Angeles County Fire Chief Anthony Marrone in a Jan. 8 press conference. By early Jan. 9, reports put the figure at closer to 2,000.
“We have no percentage of containment,” Marrone said, citing a “high number” of injuries to residents and fire response teams. The Eaton fire, centered around Pasadena, has destroyed over 100 structures, he added. At least five fatalities have been reported, and eyewitness reports have described the affected areas as “apocalyptic.”
Fueled by “dangerous” winds between 70 and 90 miles per hour, the blazes are “about as bad as it gets in terms of fire weather,” according to commentary from the National Weather Service.
“The very strong winds combined with relative humidities in the teens and dry fuels will continue to support a dangerous wind and fire weather event,” said the NWS in an update. “The worst of the extremely critical fire weather conditions are expected to wane overnight, but conditions will largely remain critically elevated through Thursday and possibly Friday as well.”
AccuWeather issued an estimate of the potential economic loss from the fires at $52 billion to $57 billion. The Palisades region is home to “some of the most expensive real estate in the country,” per the firm.
“This is already one of the worst wildfires in California history. Should a large number of additional structures be burned in the coming days, it may become the worst wildfire in modern California history based on the number of structures burned and economic loss,” said Jonathan Porter, AccuWeather’s chief meteorologist, in a statement.
For context, Porter added, AccuWeather’s economic estimates for the Lahaina and Maui wildfires in 2023 were $13 billion to $16 billion. Insured losses for the fires in Hawaii stand at $3 billion, per insurance reports.
With fires destroying properties and threatening lives, the costs of the blazes won’t ultimately be determined for some time. A note from J.P. Morgan estimated the potential insured losses at $10 billion, according to a report from Reuters.
Ratings agency AM Best said the wildfires occurred outside the typical wildfire season, and the risk has become “very high and very persistent.”
“We expect that insured losses will be significant, though it is early to define the magnitude,” said Sridhar Manyem, senior director of industry research and analytics for AM Best. “The high value of real estate in some of those areas will likely generate large economic losses with insured losses depending on the respective coverage. On the back end, demand surge and rising inflationary pressures are additional factors that could drive claims-related costs upward.”
According to data from reinsurance broker Guy Carpenter, six wildfires have occurred in the Palisades region since 1980, with the most damaging one occurring in 2018. The Woolsey Fire destroyed 1,650 structures west of Malibu and resulted in the third-largest insured loss in California history at $5.5 billion in 2024 dollars.
More at Risk
According to property risk modeling firm CoreLogic, over 456,000 homes with nearly $300 billion in reconstruction cost value are at “moderate or greater risk” of wildfire in the Los Angeles and Riverside metropolitan areas. This refers to the overall region rather than the areas currently impacted.
Conditions in the Palisades region have been “abnormally dry” since early December, according to CoreLogic, creating unique conditions conducive to wildfires.
“The Santa Ana winds that are currently driving these fires occur periodically, but the most recent winds are exceptionally strong … This not only drives the fires and embers but also inhibits flying the tanker aircraft and helicopters used to suppress the fires,” said Dr. Tom Jeffery, senior hazard scientist for CoreLogic.
Insurance Market Status
The devastating wildfires also highlight 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.