by Alex Mines, Imperial College London/ Leverhulme Wildfires
In the aftermath of the palisades and Eaton Wildfires of Los Angeles this month, California’s communities, policymakers, and insurance markets must collaborate to promote greater fire-resiliency.
California can be observed as a ‘canary in the coalmine’ when identifying market and governance challenges states face when confronted by intensifying wildfires. With the devastation wrought by the Palisades and Eaton Wildfires, discourse is turning towards the wildfire insurance and governance challenges that have contributed to the tragedy. As conversations expand from the causation of the fires, attention must be directed towards reorienting California’s fire management and insurance markets from the prioritisation of reactive recovery to proactive, equitable resiliency.
How the Los Angeles wildfires erupted
Much of Leverhulme Wildfires’ musings over the past week have centred around how the damage wrought by the Palisades and Eaton fires was decades in the making. California’s chapparal shrubland remained bone-dry from an extended period of drought, creating tinderbox conditions that enabled the annual Santa Ana winds to rapidly spread the ignitions caused around Los Angeles.
Furthermore, continued development within Los Angeles’s fire-prone Wildland-Urban Interface (WUI), the transitional region between human infrastructure and environmental wilderness, increased property exposure to the fires. While most buildings within California’s WUI are subject to strict building codes, the sheer intensity of the firestorms negated any protection.
What lacked the stringent development codes was the swathes of high-density structures the fires burned within urban and suburban neighbourhoods. Much of the properties within Palisades and Altadena remained constructed from highly combustible materials, leading to the development of firebrands which allowed the Santa Ana winds to move the conflagration from property to property.
Irrespective of potential water scarcity to tackle the flames, the convergence of the relentless winds, high ignition potential, and the ignition impetus within the WUI rendered firefighting services overwhelmed and incapable of tackling the flames.
Did Californian Fire Governance contribute to the fires?
While the metrological conditions were critical to the fire’s ignition, what makes the Los Angeles wildfires a decades-long story leading to disaster concerns the governance and resiliency challenges inhibiting California’s capacity to manage its wildfires.
Much has been discussed within the media regarding the Santa Ana winds and deteriorating climatic conditions combining with California’s tinderbox environment. But this framing occludes important discourse investigating how the governance of Californian wildfires has remained geared towards reactive suppression and recovery strategies, not actions which promote proactive resiliency and management of fire within the Californian landscape.
One such management strategy is the use of prescribed, or controlled burnings. While the Californian government has accepted fire management and prescribed burns are necessary within their fire-dependent landscapes, conflicting stakeholder influences and governance objectives can impede such fire management.
Prescribed burning activities had doubled throughout California between 2021 and 2023, but the US Forest Service ceased burning since October 2024 for the foreseeable future. Before halting prescribed burns there existed significant backlash, with many local communities worried about the impacts on air quality or conflicting interest with the Environmental Quality Act (CEQA).
This is not to suggest the requirements for improved air quality or environmental conservation are more or less critical than the management of the Californian fire regime. Rather the key point is to recognise the heavily complex stakeholder interests which, left unaddressed, can lead to the fire management failures and a lack of political will to develop resiliency countermeasures which contribute to the catastrophes observed within the Palisades and Altadena.
As established, structural codes within the newer WUI developments are designed to minimise ignition potential, but many suburban and urban properties throughout Los Angeles are old and have observed less fire-resiliency , leading to much of the conflagration within Palisades and Altadena. Management of fuel loads within urban communities would have served minimal immediate benefit, rather it was the absence of fire-resilient infrastructure which led them to burn. Instead, had effective fire management and prescribed burning been conducted within the WUI the wildfires would have never reached such depths into the unprepared urban communities, highlighting how a failure to both govern fire management within the WUI and fire-resistant construction within urban neighbourhoods led to the exacerbated destruction observed throughout.
Implications for the Californian Insurance Industry
This confluence of environmental degradation, asset/stakeholder risks, and fire governance/management challenges are devastating for the already faltering Californian insurance industry. The total insured cost remains speculative and continues to grow. On January 9th JP Morgan estimated their insured losses between 10 to 20 billion US dollars. Since then total economic losses are estimated to have .
Consequently, Californian insurance markets, and the governance of such markets, are experiencing a reckoning. Pre-Palisades and Eaton fires the Californian insurance market was already experiencing extreme stress from government regulation and increased exposure to risk. Seven of the twelve largest insurance groups have already limited, paused or ceased writing new homeowner policies in California. For those remaining, premiums have skyrocketed rendering many properties, particularly within the WUI, uninsurable.
This has resulted in many households defaulting to the Fair Access to Insurance Requirements Plan, or FAIR Plan. This state-backed insurance plan is supported by a syndicate of private insurance companies which can provide rudimentary, last-resort coverage to properties ineligible for private insurance. A standard FAIR plan policy premium is typically twice the cost of private insurance reaching an average of $3200 a month, meaning policyholders remain beholden to high insurance costs with no alternative.
In the case of Los Angeles, , totalling billions in exposure to an the insurer of last resort which only US$377million in cash reserves for payouts. Worse still, Pacific Palisades held some of the most expensive properties in the United States with the average property valued at $3.4million. With potential FAIR plan payouts capped at US$2-3million and living expenses capped at 30% of a dwelling value, policyholders could be left woefully underinsured and unable to effectively recover from the wildfires. Moreover, the FAIR plan itself may require financial assistance in order to pay policyholders, otherwise risking protracted and insufficient repayments.
Critically, there is little insurers can independently do to increase insurance accessibility. Until the end of 2024, government regulation meant insurers were unable to impose increasing costs of reinsurance (insurance for insurance companies) onto policyholders, leaving the risk burden with insurers. Furthermore, the only condition whereby cost can be imposed is if insurers increase their coverage of high-risk WUI properties by 5% of their market share per year. While this increases WUI insurance coverage, this conditionality of risk-based pricing renders insurers incapable of providing financially sustainable insurance without exposing themselves to high degrees of risk, while also passing costs to vulnerable communities.
Insurance scarcity, underinsurance, and a lack of insurance equity have negative effects on a community’s capacity to recover and build future resiliency to wildfires. Businesses within communities face long-term economic losses from the destruction of their businesses and the communities that bring their custom. The remaining community stakeholders pay more for the services they have lost locally. Even when protected by insurance, 40% of property claims are underpaid in excess of US$200,000. This deficit in capital cripples’ recovery time and underinsurance eliminates the capacity for rebuilding efforts to fully incorporate costly fire-resilient materials.
Each successive fire has regional and national implications for housing markets. As mortgage lenders typically mandate homeowner insurance when purchasing property in California the home ownership inequalities that are already significant throughout California become exacerbated as individuals are no longer able to afford extreme premiums.
Additionally, governance challenges have been effective but short-term in utility. January 9th saw Commissioner Lara instituted another one year moratorium preventing insurers from non-renewals or cancelling wildfire and homeowner insurance policies within the Palisades and Eaton regions. The moratorium is invaluable for affected communities but remains short-term in its strategy to promote recovery, as the delay won’t reduce the impacts of rising construction costs and living expenses that communities remain subjected to in a time of wildfires.
the absence of infrastructure resiliency, ineffective fire management, and population expansion into the wildland-urban interface gives rise to a conflict whereby insurance cannot be priced in a financially sustainable capacity
In synthesis, the absence of infrastructure resiliency, ineffective fire management, and population expansion into the WUI gives rise to a conflict whereby insurance cannot be priced in a financially sustainable capacity, inducing insurance scarcity. Where insurance is available, it becomes overpriced for the majority of people or is delivered through the rudimentary and still-costly coverage of the FAIR plan, rendering effective wildfire insurance inaccessible to at-risk communities. With the catastrophic costs of the 2025 fires, the exodus of insurers from California will likely continue without a significant change in wildfire governance that prioritises equity, risk mitigation, and resilience.
How prioritising resiliency strategies can help insurance markets and WUI Communities
From what has been discussed we can observe stakeholder equity, market resiliency, and infrastructure development have manifested as three key challenges that if addressed, can build the desired resiliency and support Los Angeles requires in the event of future wildfires. Insurers, policymakers, WUI and urban communities must all be a part of the collaborative process to build such resiliency.
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Constructing fire-resistant buildings while creating initiatives which deliver insurance discounts and increased coverage
If anything has been made clear from this round of LA wildfires, all housing developments throughout California must be constructed to the highest degree of fire resiliency. This level of development is costly, but policymakers and insurance markets can collaborate with high-risk communities to offer incentives and grants to enable WUI stakeholders to embed fire-resistant protections onto their properties.
The Safer from Wildfires Framework and Firewise US are Californian and National moving in the right direction. Both initiatives promote the development of defensible spaces, home retrofitting and vegetation clearing to secure homeowners’ insurance discounts. While both framework is productive, it lacks enough funding assistance for communities to embed the resiliency measures into their homes or enough incentive for insurers to take on the remaining risk and provide discounts and coverage.
More inclusive community grant programs for fire-resistant infrastructure, particularly for low-income communities which would be priced out of building fire resiliency into their homes will be critical to ensuring all communities are made fire-resistant while increasing the accessibility of insurance. Additionally, Insurers and WUI communities must collaborate to specifically tailor resiliency actions that will reduce risk for both parties.
Critically, this is not simply an exercise of providing grants, increasing coverage and developing guidance, but working together with insurance companies and WUI communities to co-produce fire-resilient infrastructure.
2. Provide parametric insurance to distribute of risk, promote resilience and recovery
While promoting incentives and premium discounts for greater fire-resistant development delivers some accessibility to wildfire insurance, there is a likelihood that the costs for coverage within many high-risk WUI communities will remain prohibitively high.
An emerging solution to enable greater insurance accessibility is the deployment of parametric insurance. differs from traditional insurance by providing coverage when certain predetermined criteria or “triggers” are achieved. Once achieved, pre-agreed payouts are dispensed rapidly, enabling faster recovery. Furthermore, the calculation of damages is more transparent and accurate, minimising the likelihood of underpayment that would compromise the resiliency of the affected community. For wildfires, the predetermined trigger could be ignition in a specific location or an intensity threshold.
Community based catastrophe insurance (CBCI) has been a proposed form of parametric insurance in California, whereby a community entity can purchase coverage to protect their community from a singular peril such as a wildfire. This diffuses wildfire risk and insurance costs across the covered community while ensuring adequate protection when impacted by a wildfire. Additionally, if the CBCI is developed to cover non-damage business interruptions, such as reduced custom from increased air pollution from wildfires, it can embed financial resiliency into the community as well.
The deployment of parametric insurance remains and requires considerable expansion in its utilisation. The regulatory environment remains geared toward conventional indemnity insurance and must evolve to facilitate the provision of parametric policies. In combination with the development of adaptive and mitigation measures undertaken on properties, parametric insurance like the CBCI could finally establish a condition whereby Californian communities can possess both fire-resilient assets and accessible financial coverage in case of wildfires.
3. Increased polycentric governance and community co-produced resiliency projects
Fire management contains innumerable stakeholders with innumerable interests which delays effective management. Without effective local and regional governance fire management, the development of fire-resistant infrastructure and sustainable insurance .
Increased polycentric governance will enable greater adaptive fire management within fire-prone Californian WUI and suburban communities. Community Wildfire Protection Plans (CWPPs) are community developed wildfire risk reduction programs that exist throughout California that are developed in conjunction with local, state, and tribal stakeholders. Currently, CWPPs are not mandatory for WUI communities, and while grants exist for established CWPPs there is no financial support for their development.
This co-production of management and risk solutions can drive the political will required to maintain other wildfire resiliency projects. Greater of CWPPs can enable greater community accessibility to resources which build resilience, including parametric insurance. Furthermore, CWPPs can allow for greater decentralisation of fire management, enabling communities to work with markets as well as other stakeholders. This could be a pathway to enable equitable management of prescribed burnings among other management strategies required to reduce fire risk within a community.
Concluding thoughts: Building a fire-resilient California
While the environmental conditions which led to the Palisades and Eaton wildfires were the extent of the destruction was predictable. The confluence of infrastructural, governance, and market factors that have existed for decades is slowly becoming the decisive discourse of Los Angeles’s wildfire tragedy. The tools exist to improve California’s resiliency to wildfires, but too great an emphasis remains on reactive solutions.
Other fire-prone and WUI-dense states should take note. Colorado, which will begin dispensing claims from its own new FAIR Plan this year, should remind themselves that the 2021 Marshall fires hold many similar traits to that of the Palisades and Eaton fires. The fires destroyed 1084 structures causing $1billion in insured losses. Of those insured, between 34-67% of policies were considered underinsured.
It remains unclear as to whether California’s strategies can be transferred to other states and parts of the West of North America, but states with less mature insurance industries and rapidly expanding WUIs must seek resiliency strategies or risk falling into the same insurance and governance pitfalls as California.
There is hope these wildfires serve as a turning point for Los Angeles and California. With California being the world’s fifth largest economy, economic implications of repeated wildfire disasters of this magnitude would be felt throughout national and international insurance markets. For the sake of California’s urban, suburban, and WUI communities, stakeholders must work together with policymakers and insurance markets to establish bold resiliency development which minimizes risk exposure holistically and builds an environment where Californians can possess fire-resistant property and fire insurance in an equitable, accessible, and financially sustainable way.
Alex Mines is a PhD student with the Leverhulme Centre for Wildfires, Environment and Society and part of the Wildfires, Insurance, Risk Regulation and Recovery (WIR3) team. His Research with the centre centralises around utilising financial markets and mechanisms to promote resiliency and recovery within the fire-prone landscapes of North America.
This article was developed with contributions from Adriana Ford, David Demeritt FacSS, Matthew Kasoar, Simon Levey, Apostolos Voulgarakis, and Guillermo Rein.
Photo : Palisades Fire that started in the City of Los Angelas, January 2025, taken on 8th Jan by California Department of Forestry and Fire Protection (CAL FIRE)
