Early Start to California Wildfires in 2025

By Anthony Cappelletti

General Insurance Insights, June 2025

The June 2019 issue of General Insurance Insights included my article on The Increasing Risk of Wildfire Catastrophes. The article was motivated, in part, by the substantial wildfire damage experienced in California during 2017 and 2018. Nevertheless, the focus of the article was on wildfires in a broader context, rather than specifically addressing the California wildfires. The June 2024 issue included my article on Property Insurance in California and Florida: A Problem of Availability and Affordability. The previous article included the impact of California wildfires on the property insurance market. This article focuses on whether recent catastrophic wildfires in California have further complicated property insurance issues in the state.

California Wildfires of January 2025

It didn’t take long for California wildfires to become an issue this year. Two major wildfires occurred in mid-January, causing death, significant destruction of property, and destruction of a significant area of wildlands. They were the Palisades and Eaton fires, both occurring on Jan. 7 in Los Angeles (LA) County. These fires resulted in a combined total of 30 fatalities, with 18 from Eaton and 12 from Palisades. This would make these fires the fourth and fifth deadliest California wildfires on record, only behind the Camp, Tunnel and Tubbs wildfires.

The Eaton and Palisades fires were not contained until the end of January, 24 days after they started. The damage caused by these wildfires is substantial, and insurers are continuing to process claims. Debris removal and cleanup are ongoing, while rebuilding efforts have just begun. It may take another year for the affected areas to be fully restored.

Table 1 shows the top five wildfires ranked by the number of structures destroyed.[1]

Table 1

Top Five Wildfires by Structures Destroyed

In addition to the destroyed structures indicated in Table 1 above, the Eaton fire has damaged 1,074 structures, while the Palisades fire has damaged 973 structures.

The California Department of Insurance (DOI) has been publishing statistics from the two LA County wildfires. As of March 5, 2025, there were 37,749 claims filed, and 27,821 claims that were partially paid, with total payments of $12.1 billion. While that may seem like a lot, the payments will ultimately be much greater than this. The DOI states that the “data does not include property rebuilding or debris removal, which will grow as rebuilding gets underway.”[3] Most of these payments are for personal property/contents, additional living expenses and business interruption—and these payments will continue until properties and businesses are restored. Aon reports $52.5 billion in economic losses and $37.5 billion in insured losses ($20 billion for Palisades, $17.5 billion for Eaton),[4] similar to those reported by Milliman and Verisk.

AccuWeather estimates over $250 billion in losses from these LA wildfires. This estimate is higher than those reported by Aon, Milliman, and Verisk because it includes additional economic costs not covered in those reports. These additional costs include damage to utilities and infrastructure, the financial impact of evacuations, lost wages from affected jobs, emergency shelter expenses, and health care costs for those injured by the fires or exposed to poor air quality from smoke.[5]

These two wildfires were not the only significant ones to occur in January in the state—they were just catastrophic ones. In total, California experienced 14 major wildfires in the month of January.

It should be noted that the traditional CA “wildfire season” runs from May to October for LA County and June to November in northern California. This prompts the question: Why did numerous significant wildfires occur in January? Additionally, does this mean that there will be significantly more major wildfires than would normally be expected during the wildfire season?

REASONS FOR THE JANUARY 2025 WILDFIRES IN CALIFORNIA

To answer those questions, we will address the question: What causes wildfires to occur? And that’s simple, it comes down to the existence of combustibles together with ignition sources.

• Trees and underbrush are combustible. Plenty of that in the California wildlands.
• People are the number one ignition source for wildfires, whether by accident or intentionally. There are lots of people in LA County.

That addresses why wildfires occur generally and, in LA County, specifically. So, what increases the number of major wildfires that occur?

The frequency and severity of wildfires are significantly affected by weather conditions. During the dry seasons, such as spring and fall (the peaks of the wildfire season), the trees and underbrush reach their highest combustibility, making it easier for fires to ignite and spread.

Additionally, wind plays a significant role in the spread of wildfires; stronger winds can carry embers over great distances. These embers can start new fires and make existing ones much worse.

So why did southern California experience these wildfires in January of this year?

Unexpected weather patterns can disrupt the traditional wildfire season, which may lead to an increase in major wildfires. California experienced unexpected weather patterns in January 2025. On Jan. 4, Grace Toohey of the Los Angeles Times published an article titled “With negligible rain in 8 months, Southern California swings toward drought.” In that article, Ryan Kittell, a National Weather Service meteorologist, is quoted as saying that this was one of the “top ten driest starts to our rainy season on record“ and that “the plants are as dry as they normally are in October.”[6] Kittell also noted that an upcoming offshore wind event could cause damage under these conditions.

Kittell wasn’t wrong. Moderate drought conditions and a major wind event—all it would take is a spark or ember to create a major wildfire. There is no lack of manmade or natural ignition sources. As of the time I write this, the cause (or causes) of the Eaton and Palisades wildfires is still under investigation. Anything reported up until now (mid-May) is speculation.

Does this mean that there will be significantly more major wildfires than would normally be expected during the wildfire season? Not necessarily. There could always be unexpected weather that works in their favor, such as an increased level of precipitation or a lack of significant wind events. Only time will tell.

The Insured Loss

The total number of structures destroyed in the Eaton and Palisades wildfires is nearly equal to the record set by the 2018 Camp wildfire. However, the insured loss amount for the Eaton and Palisades wildfires will exceed the previous record set by the Camp wildfire—by a significant amount—for each of these two 2025 wildfires individually.

There is a reason for this. Living along the wildland-urban interface (WUI) near a major metropolitan area is highly desirable. Many WUI areas include affluent neighborhoods with very large homes. Neighborhoods destroyed by the Eaton and Palisades wildfires included many in the WUI. The homes destroyed in these fires included many sprawling estates occupied by the wealthy. According to media reports, many celebrities have lost their homes and possessions.[7] The insured values for these properties were significantly higher than the average insured amount. The fires also destroyed businesses, churches, schools and libraries. Evacuations were ordered. Over 80,000 people were displaced.

The claims paid by individual insurers will be exceptional. The only bright spot for them is that a good amount of the total claims paid will be assumed by reinsurers under catastrophe reinsurance treaties. Of course, reinsurers are likely to increase their rates at the next renewal period.

The California Property Insurance Market

The 2018 Camp wildfire had already had a major effect on the California property insurance market. To keep insurance affordable, the state department of insurance made it difficult for insurers to increase their rates to adequate levels. Several major insurers suspended writing new policies or abandoned the market altogether. Additionally, the California FAIR Plan, which serves as the market of last resort,[8] experienced a significant increase in the number of policyholders. Last year, Victoria Roach, president of the California FAIR Plan stated that they were “one event away from a large assessment.” She wasn’t wrong.

The FAIR Plan provided insurance to a significant proportion of structures that were destroyed by the Eaton and Palisades wildfires. It estimates it has claims amounting to $4 billion. The plan had under $400 million in funds available to pay claims. In February of this year, the California FAIR Plan received approval to assess its member companies $1 billion because of these two fires.[9] The plan has reinsurance with a $900 million attachment point with $2.6 billion coverage, so $3.5 billion will be available to pay the plan’s claims. So the insurers that experienced catastrophic losses will also be hit with a significant assessment — and the FAIR Plan’s funds could still be insufficient.

In April, the California Assembly passed an act (Assembly Bill 226) that allows the plan access to additional financial resources through issuing bonds or establishing a line of credit so that it has sufficient funds for paying its claims.[10] Another act is making its way through the California Assembly that will have the state provide grants to fund projects that aim to reduce climate risks, as well as those that create new insurance options for communities (Assembly Bill 1236).

Assembly Bill 226 is a quick fix to pay the January claims without further harm to the financial strength of insurers writing property insurance in the state. Assembly Bill 1236 lacks many details and it’s difficult to judge how effective it will be.

What Now?

The FAIR Plan is still in a compromised financial position. If another catastrophic wildfire occurs this year, the problems faced by the plan, and the insurers in the market that fund it, will be much, much worse.

Insurers writing in the market must be concerned about the ability to make a profit on the business written. To ensure that the market retains insurers, rate regulation must be less restrictive so that insurers can charge rates that fully reflect wildfire risk.[11] It’s true that this would affect affordability. Perhaps this can be solved by other means, such as providing financial assistance to those whose insurance premium exceeds a certain percentage of their income and whose financial worth is less than some specified amount. Another option is to treat wildfire risk in much the same way as flood risk is treated nationally—by establishing a state-run insurer that writes wildfire risk policies and property insurers exclude the risk from their coverage. Or the state can operate as a reinsurer that assumes a large share of an insurer’s wildfire claims (after claims pass some specified threshold) at minimal or no cost to the insurer. There are more options that address insurance, but I have to stop writing this article at some point.

Insurance change is only part of the solution. Wildfire risk needs to be reduced. There could be some limit on how close structures can be to the wildlands. Any existing structures within that zone would have to be modified with materials that are not combustible (e.g., sheds or fences made of wood need to be replaced with those made of nonflammable materials, flammable roofing materials need to be replaced or covered with those made of nonflammable materials). Some areas of wildlands near communities should be thinned out to act as a fire break. Additionally, an adequate water supply and water pressure to fight wildfires is important; this was an issue with the Eaton and Palisades wildfires. Another alternative is to find a way to stop saltwater from damaging the equipment on Super Scoopers[12] so that the ocean can supply more of the water for controlling wildfires.

There is much to be done to reduce the risk of the next major wildfire becoming a catastrophic event.

Actuaries can be part of the team designing solutions. We can be involved in the process of actuarially costing various alternative solutions so that decision makers have the information required to make an informed decision.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.

Anthony Cappelletti, FSA, FCIA, FCAS, is a staff fellow for the SOA. He can be contacted at acappelletti@soa.org.