While many of us kicked off 2025 in a typical way with New Year’s Eve parties, collards and black-eyed peas on New Year’s Day and resolutions for “New Year, New Me”, unfortunately, our citizens in the western part of the country moved quickly from fireworks to fire damage. In the wake of deadly wildfires that have engulfed large swaths of land in Los Angeles County, many have lost their homes, their belongings, and even more devastating, some of their family members. While the survivors persevere and prepare to try to rebuild their lives and return to some semblance of normalcy, there have been many concerns voiced, some inaccurately, about how the Insurance industry plans to respond.
Clarifying California Insurance Law
First, let us address the message that was delivered by Vice President Harris. Madame VP spoke to media last week regarding the federal response, and during a press conference stated, “Many insurance companies have canceled insurance for a lot of the families who have been affected and will be affected, which is only going to delay or place an added burden on their ability to recover.” Fox Business news spoke with David Sampson, president and CEO of the American Property and Casualty Insurance Association (APCIA), who is quoted as saying about the VP’s remarks, “It is false, wrong and dangerous to even insinuate that insurers are abandoning their customers, and it’s especially concerning coming from a former California statewide elected official who should know the law.” He added, “Insurers are committed to protecting the safety of those affected and providing expedited relief to their policyholders for the covered losses.”
As Mr. Sampson indicated, California law prohibits the mid-term cancellation of an insurance policy, with the only exceptions being non-payment of premiums or fraud. Before the wildfires, California was dealing with an insurance crisis due to recent heavy losses in the state. As a result, many standard carriers were pulling out of offering coverage or placing aggressive limits on the exposures they were willing to write. This has led to difficulties in placing Homeowner’s coverage statewide. The state’s largest home insurer, State Farm, announced last March that it would non-renew roughly 72,000 policies – citing inflation, regulatory costs and the expense associated with catastrophic losses in that area. Other carriers, including Allstate and Hartford, had reduced their exposures and in some instances, exited the California homeowner’s insurance market over the past several years. The major wildfires of 2017 and 2018 had already resulted in many nonrenewed policies in wildland-urban interface (WUI) regions while enhancing underwriting standards, conducting inspections, requiring homeowners to take steps to reduce wildfire risk, and reducing geographic clustering per Moody’s. California’s FAIR plan (the state insurer) has grown rapidly as a result in the last several years for homeowners and business owners unable to obtain coverage in the standard marketplace. Insurers in the state are required to participate in the FAIR Plan losses in direct proportion to their company’s market share.
Projected Economic Loss and Rate Increases
Although it will take weeks or months to determine to total magnitude of damage, these wildfires are expected to result in record-breaking losses of at least $20 billion, according to initial estimates by Reuters. These losses could seriously affect the insurance industry’s first-quarter losses and result in higher prices in the regions affected. Given the number of high-value homes affected, these wildfires could be the costliest in U.S. history. “Ultimate insured losses will depend largely on the coverage secured by homeowners, many with high-value real estate, as well as the level of protection obtained by business owners,” AM Best stated. As the fires continue to burn, estimates will continue to rise. AccuWeather estimates as much as $150n in total damage and economic loss will ensue. For comparison, they estimated the total damage and economic loss of the wildfires in Maui in 2023 at $13 to $16 billion. Undoubtedly, the Los Angeles wildfires will result in unprecedented damage to the insurance industry, which will impact coverage and pricing strategies in 2025 and beyond. Insurers may end up filing for rate increases for renewals effective in 2026 according to Robert Hartwig, a clinical associate professor of finance and insurance at the University of South Carolina in a recent interview.
Maximizing Coverage
While many consumers struggled to find coverage before this loss, there is good news for the ones that do have policies in place. Unlike flooding, fire (including wildfire) is most times a covered peril under homeowner’s policies. As such, there will be coverage for the resulting damage. Those with Comprehensive coverage on their autos will also have coverage against the perils of fire and falling objects. To date, carriers are already assisting by advancing funds through Additional Living Expense (ALE), and many have already secured temporary housing with the assistance of this coverage.
Filing A Claim
If you have been impacted by wildfire, there are steps you should take to begin the claims process. First, contact your Insurance carrier or agent as soon as you can report the claim and make sure that you are complying with any requirements and deadlines placed in the policy. Secondly, if you are safely able to, take photos of damaged items and hold these until your carrier advises you to dispose of them. And of course, keep any receipts for immediate expenses that you incur – items such as temporary lodging, toiletries, food, and clothing that you must purchase now, etc. It should be noted that if you can re-enter your home, fire produces many antigens that can be harmful to your health, and as such, any remaining food items and toiletries are no longer considered safe for ingestion or use. Additionally, air quality and any potential residue in your property’s HVAC and ventilation system may need to be addressed as well. Just because you cannot see damage, does not mean it is not present.
If you do find yourself without coverage in the face of this type of severe loss, there are other potential avenues to offset the consequential damages. FEMA has created a Community Resilience Resources guide which can be found at http://efaidnbmnnnibpcajpcglclefindmkaj/https://www.fema.gov/sites/default/files/documents/fema_r8-recovery-resources-wildfire.pdf. Additionally, hang on to those receipts – at tax time your CPA may be able to document those unreimbursed expenses as an offset on your tax obligations.
Safeguarding Your Success
It is important to note that many, while insured, may not be fully insured for the value of their home and belongings. Even if you have not been impacted by this type of loss, this is a perfect opportunity to do a policy review to ensure that you are purchasing adequate limits on your coverage. Contact your Sentinel team today to receive advice, guidance, and counsel on limit adequacy, coverage triggers, and any other risk management concerns.
