Los Angeles wildfires to impact profitability of US property insurers

The Los Angeles (LA) area in the US has witnessed a devastating impact from a series of wildfires that erupted since the second week of January.

There were 312 wildfires that resulted in 28 deaths and the destruction of 16,255 structures as of 29 January, with the Palisades and Eaton wildfires continuing to burn, according to the California Department of Forestry and Fire Protection. Estimates from the University of California suggest that the total damage from the LA wildfires could surpass $20 billion. Consequently, US insurers may see increased claims in 2025 across various insurance lines, potentially affecting their profitability, says GlobalData, a leading data and analytics company.

Manogna Vangari, Insurance Analyst at GlobalData, comments: “The recent LA wildfires are expected to impose significant financial burdens on property and casualty insurers, with damages potentially exceeding billions of dollars. The destruction affects both residential and commercial properties, particularly high-value homes and businesses, leading to anticipated insured losses to be among the highest in California's history.”

Property insurance claims are projected to represent a 13.1% share of total general insurance claims in the US in 2025, totaling $247 billion. Incurred losses are anticipated to rise by 7.5% in 2025, reaching $193.6 billion from $180.1 billion in 2024. However, the full effect of wildfires may push actual claims even higher. Consequently, the profitability of the US general insurance sector is expected to be notably affected, with the average combined ratio predicted to exceed 100% in 2025.

According to GlobalData’s Global Insurance Database, the US property insurance industry is expected to grow at a CAGR of 7.3% over 2025–29, from $416.3 billion in 2025 to $551.1 billion in 2029, in terms of gross written premiums (GWP).

Vangari adds: “The wildfire incident is set to be one of the twenty most costly natural disasters in the history of the US. Its financial impact will affect various segments of the insurance industry, including standard homeowners' insurance, excess and surplus lines insurance, and commercial property insurance.”

In 2024, thousands of insurance policy renewals have been denied in the Pacific Palisades neighborhood, where fires have led to huge devastation. The California Department of Insurance reports that from 2020 to 2022, insurers did not renew about 2.8 million homeowner policies, including over half a million in Los Angeles County, as new policies were not issued for high-value homes with higher wildfire risk.

In response to recent wildfires, California's Insurance Commissioner has established a moratorium effective from January 10, 2025 preventing insurance companies from canceling or refusing to renew policies in affected areas for the next one year. This regulation aims to provide vital stability for policyholders.

Additionally, a recent California legislation allows insurers to include catastrophe-modeled losses and reinsurance costs in their pricing starting January 14, 2025 provided they continue offering coverage in high-risk areas.

Vangari concludes: “The LA wildfires may exceed insurance claims expectations for US property insurers and reinsurers in the next few years. The escalating incidence of such significant events will increase demand for comprehensive home insurance coverage and contribute to the expansion of US property insurance over the next five years.”